Legislature(1995 - 1996)
03/16/1995 10:09 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
March 16, 1995
10:09 a.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative Tom Brice
Representative Bill Williams
Representative Gary Davis
Representative Bettye Davis
Representative David Finkelstein
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HB 207: "An Act relating to adjustments to royalty reserved to the
state to encourage otherwise uneconomic production of oil
and gas; relating to the depositing of royalties and
royalty sale proceeds in the Alaska permanent fund; and
providing for an effective date."
HEARD AND HELD
HO&G - 03/16/95
HB 209: "An Act relating to the authority of the commissioner of
natural resources to allow reductions of royalty on oil
and gas leases; and providing for an effective date."
SCHEDULED BUT NOT HEARD
WITNESS REGISTER
STEVEN R. PORTER, Senior Attorney
ARCO Alaska, Inc.
700 G Street
Anchorage, AK
Telephone: (907) 265-6132
POSITION STATEMENT: Supported HB 207
BRADLEY PENN, Advanced Landsman
Marathon Oil Company
P.O. Box 196168
Anchorage, AK 99519-6168
Telephone: (907) 564-6400
POSITION STATEMENT: Supported HB 207
RICHARD FINEBERG (Teleconference)
P.O. Box 416
Fairbanks, AK 99725
Telephone: (907) 479-7778
POSITION STATEMENT: Opposed HB 207
KEVIN TABLER, Land Manager
Union Oil Company of California
909 West 9th Avenue
Anchorage, AK 99501
(907) 276-7600
POSITION STATEMENT: Supported HB 207
JOHN SHIVELY, Commissioner
Department of Natural Resources
400 Willoughby Avenue
Juneau, AK 99801
Telephone: (907) 465-2400
POSITION STATEMENT: Supported HB 207 with amendments
PREVIOUS ACTION
BILL: HB 207
SHORT TITLE: ADJUSTMENTS TO OIL AND GAS ROYALTIES
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
JRN-DATE JRN-PG ACTION
02/27/95 501 (H) READ THE FIRST TIME - REFERRAL(S)
02/27/95 501 (H) OIL & GAS, RESOURCES, FINANCE
02/27/95 501 (H) FISCAL NOTE (DNR)
02/27/95 501 (H) 2 ZERO FISCAL NOTES (DNR, REV)
02/27/95 501 (H) GOVERNOR'S TRANSMITTAL LETTER
03/08/95 665 (H) CORRECTED FISCAL NOTE (DNR)
03/09/95 (H) O&G AT 12:00 PM CAPITOL 17
03/09/95 (H) MINUTE(O&G)
03/14/95 (H) O&G AT 10:00 AM CAPITOL 124
03/14/95 (H) MINUTE(O&G)
03/15/95 (H) O&G AT 05:00 PM BELTZ ROOM 211
03/15/95 (H) MINUTE(O&G)
03/16/95 (H) O&G AT 10:00 AM CAPITOL 124
BILL: HB 209
SHORT TITLE: OIL & GAS ROYALTY REDUCTION
SPONSOR(S): REPRESENTATIVE(S) GREEN, Rokeberg
JRN-DATE JRN-PG ACTION
02/27/95 503 (H) READ THE FIRST TIME - REFERRAL(S)
02/27/95 503 (H) OIL & GAS, RESOURCES, FINANCE
03/01/95 551 (H) COSPONSOR(S): ROKEBERG
03/09/95 (H) O&G AT 12:00 PM CAPITOL 17
03/09/95 (H) MINUTE(O&G)
03/14/95 (H) O&G AT 10:00 AM CAPITOL 124
03/14/95 (H) MINUTE(O&G)
03/15/95 (H) O&G AT 05:00 PM BELTZ ROOM 211
03/15/95 (H) MINUTE(O&G)
03/16/95 (H) O&G AT 10:00 AM CAPITOL 124
ACTION NARRATIVE
TAPE 95-12, SIDE A
HO&G - 03/16/95
HB 207 - ADJUSTMENTS TO OIL AND GAS ROYALTIES
Number 000
CHAIRMAN NORMAN ROKEBERG: ...Oil and Gas Committee at 10:09 on
March 16th, and for the record, Representative Brice,
Representative Williams, Representative Gary Davis, Representative
Bettye Davis, Representative David Finkelstein and Chairman are
present. I would like to apologize for the delay. We were going
to wait for Representative Green to present his bill, 209. He's
tied up in committee so we're going to start with the testimony of
Mr. Steve Porter from ARCO. Steve, if you would come forward,
please, state your name, address and affiliation, and proceed, sir.
Number 019
MR. STEVEN R. PORTER of ARCO Alaska, Inc.: Thank you, Mr.
Chairman, members of the committee. My name is Steven R. Porter.
I'm a senior attorney with ARCO Alaska, Inc., 700 G Street. I do
have some prepared remarks that I believe were passed around.
(Materials were handed out.)
I can give just one item of background. Again, I am a senior
attorney with ARCO. Before that I spent five years in the Attorney
General's Office in the Oil and Gas and Mining section, working on
such things royalty reductions, unitization, leasing... Okay. I
appreciate the opportunity to appear before this committee and to
reiterate ARCO Alaska's support for HB 207. ARCO Alaska, Inc.
testified last week, as you no doubt recall, that HB 207 would be
an important first step in providing the state the tools that it
needs to increase oil and gas production in Alaska. HB 207
represents an improvement to an existing royalty reduction statute,
and again, that's AS 38.05.180J. The bill, basically, in our
minds, would do two important things. The first is to add a new
royalty reduction power to supplement the two current powers. The
current statute addresses declining and shut-in fields and this
bill would allow the commissioner to also provide some incentives
for marginal fields that are about to be started up. Those
provisions could be found in page two of the bill, lines 28 and 29.
The next thing that the bill would do is to revise the technical
standards that the commissioner of natural resources must consider
when granting royalty relief. And that's found in page three of
the bill, lines 13 through 17, and lines 28 through 30.
Essentially, now the provisions call for an assessment of an
economic rate of return that I believe has proved problematic in
the past, and the commissioner has tried to assess royalty
reduction applications, and it would replace that economic standard
with a more general standard that the commissioner grant the
royalty reduction only if that reduction would be in the state's
best interest. And that standard, of course, is very similar to
the standard that's now in place for lease sales. The commissioner
can only have a lease sale if that sale is found to be in the
state's best interest. ARCO Alaska, Inc. would also like, at this
time, to endorse the testimony yesterday from BP Exploration, and
Mr. Wessells. One issue with regard to the current bill that there
was some discussion on yesterday, is a balancing between the
discretion that's given to the commissioner, and also procedural or
other protections that might be in place to protect the public
interest and any royalty reduction. It's my understanding that
under the current statute the Division of Oil and Gas has been
unable to grant royalty reductions. There was one royalty
reduction as part of a settlement of litigation, but basically,
180J has not been an effective tool for providing incentives to the
oil and gas industry. Acting Director Ken Boyd testified yesterday
that royalty reduction requests need to be addressed on a case by
case basis, that each field is somewhat different and the
commissioner should have the flexibility in the statute to address
each unique situation. He spoke on behalf of allowing flexibility
in the statute and we endorse that position. We think that the
committee and the bill should allow enough flexibility to the
commissioner so that the commissioner can have the ability to
provide meaningful incentives where appropriate. We also recognize
the interest in providing some oversight on decisions made by the
commissioner under this statute, and we would endorse the
suggestion made in hearings the other day by Representative Brice
that the Attorney General might be charged with ensuring that the
commissioner's decision was proper, that both the process and the
decision. ARCO Alaska would appreciate the opportunity to work
with the committee or other persons so ensure that the bill, as
passed out, will provide incentives to increase oil and gas
production while protecting the public interest. Thank you for the
opportunity to testify, and I'd be happy to address any questions
you may have.
Number 124
CHAIRMAN ROKEBERG: Are there any questions of Mr. Porter by the
committee? Representative Davis.
REPRESENTATIVE GARY DAVIS: Thank you, Mr. Chairman. Mr. Porter,
since you have been with the AG's Office previously and have dealt
with the current statute that relates to royalty reduction, is
there any question or any concern on the constitutionality of that,
of that section?
Number 136
MR. PORTER: As in place now? Or as amended?
REPRESENTATIVE G. DAVIS: Yeah, the one, the one that's in place
now. Of course, this is just an expansion of that, an addition to
that.
MR. PORTER: There has been a concern raised that because leases
are purchased at competitive bid that there should be some fairly
stable rules of the game so that the lessees that weren't able to
obtain the lease were on even footing with the lessee that did. I
don't think that rises to the level of a constitutional issue
though. That's always been a concern about protecting the
integrity of the competitive bidding process as established by
statute. And so, it's our belief that if the legislature chooses
to allow incentives to lessees that it's not incompatible with the
competitive bidding system and does not raise any constitutional
issues.
Number 149
REPRESENTATIVE G. DAVIS: Thank you. Of course, there's, my mine,
Mr. Chairman, there's always, there's always two sides and
everybody, can always be a question in any manner whether it's even
right for us to be here today, you know. And it can be a question
of constitutionality too, so, I just wanted to get some
clarification. Thank you.
Number 153
CHAIRMAN ROKEBERG: Well, Mr., Mr. Porter, referring to the
addition of "convincing" after clearing "convincing" which is on
lines 11 and 23 of the third page. It says that the commissioner
may not grant a reduction of royalty unless the lessee requests the
reduction, making a clear and convincing showing. Can you tell me,
given your legal background in this, what the inclusion of those
words means and why you think they are there?
Number 163
MR. PORTER: It's more easy for me to address why they are there.
It's my understanding that it's the belief of the attorney
general's office that by adding the words "clear and convincing"
that would reinforce the commissioner's discretion to deny royalty
relief in cases where it was appropriate. As far as a legal
matter, I haven't personally done any research on the difference
between a clear showing and a clear and convincing showing. It
does appear to have the inference of requiring a greater amount of
evidence in support of the royalty reduction (indisc.) though.
Number 174
CHAIRMAN ROKEBERG: Right. So, that is kind of one of the checks
and balances. We have a higher standard here than we previously
had under the former bill. Is that correct?
MR. PORTER: Yes.
CHAIRMAN ROKEBERG: Okay.
MR. PORTER: Yes, definitely.
CHAIRMAN ROKEBERG: I think that's all at this time. I know we
want to hear from -- oh, excuse me. Representative Finkelstein.
Number 180
REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. Just
quickly, the, you mentioned that you didn't think the existing
statutes work, and what's, what specifically in them is the, what
causes companies to not use it?
Number 186
MR. PORTER: Mr. Chairman, Representative Finkelstein. Again, as
the bill, or as the statute is currently drafted, it would only
allow reductions to reestablish production from shut-in fields, or
to prolong production from declining fields. That, by its nature,
is going to limit you to existing fields in which the economics are
marginal. The new prong here would allow the commissioner to
provide incentives for marginal fields that have not yet come into
production and may not come into production without the reduction
in royalty. So there is a new prong added on to the list of fields
that qualify. And then, again, the existing standard, it's page
three, lines 13 through 17, and 28 through 30, talks about an
economic evaluation of rates of return on production from the
field, and maximum economic returns. It's my understanding that
that's proved problematic on at least one prior application in
which the lessee had purchased a field from another lessee and did
not have the economic data to go back to the beginning of the field
life and actually make some sort of showing on what sort of return
was arrived from all the production for the life of the field.
Again, that would be replaced with the more general best interest
finding requirement like the lease sales in which the commissioner
could address the totality of the circumstances, not just the
economic rate of return.
CHAIRMAN ROKEBERG: Thank you, Mr. Porter. We need to move on, at
this time, we have further questions if you're going to be around,
we'd appreciate it 'cause we'd like to hear from Representative Joe
Green, and Representative Green, if you'd like to come forward.
I'd just like to preface this by saying that we invited
Representative Green to come this morning because the topics of the
testimony from both Marathon Oil and Unocal will be focusing on
mature fields in Kuparuk this morning. So, I thought it would be
appropriate if Senator Green could explain his bill and its
relationship, particularly as it relates to mature fields. So, you
got the court there.
REPRESENTATIVE JOE GREEN: Thank you, Mr. Chairman, committee
members. I have not followed as closely as I might the discussions
of House Bill 207, so I'll confine my comments strictly to House
Bill 209 as it may have an impact, and hopefully, would be
integrated within House Bill 207, and make one kind of a package
so, as it were, to enhancement. The two issues that I would like
to address, and certainly we are talking about mature fields now.
We're not talking about how 209 would affect new fields that you
have probably been discussing, those marginal fields of development
there. This, this whole set of enhancements has to do only with
fields that are on their last legs as all fields ultimately will
become (indisc. - papers rattling) technical people, but so, what
I would like to address is not so much the precise way the
commissioner might grant the royalty reduction, but rather to give
a couple of examples, and perhaps maybe, if that be the will of the
committee or the legislature ultimately, that these then could be
used as guidelines that the legislature finds appropriate and that
the commissioner then could use as kind of, all right, I'm going to
negotiate with company or unit A, in a manner that may not be
precisely as this, as these might offer, but they could be used in
comparison so that at least he knows he's, he's dealing in the same
realm that the whole concept was designed for. And so, with that
in mind, I have a couple of handouts that I'd like to discuss --
and do you have a short time frame, Mr. Chairman? These may take
several minutes to discuss.
CHAIRMAN ROKEBERG: The time is yours. We have a lot of testimony,
but I mean, we want make sure you get a proper hearing.
REPRESENTATIVE GREEN: What's being passed around, and I hope there
are some extras for some of the people in the audience to follow
along, are two illustrations, and again, I want to make sure that
the committee understands that these are not being submitted as the
only, but rather as illustrations. Two things happen as the field
reaches its economic limit for that period time when consideration
has to be made that we are now in the death throws and may have to
plug and abandon. Illustration number one is a crude attempt at
trying to show the costs that cause the field to get to the
economic limit versus time that the field has been on production,
and we attempted to shade two different types of costs. There are
those, and it's probably a misnomer to say irreducible, but these
are the conf... it's irreducible from the legislature or the
state's standpoint. This would be something that the company, or
the unit operation, or whoever is doing the lease operations would
have control over. Those costs, and certainly we are all painfully
aware of what's happened in the oil industry this past year in
trying to reduce those very costs as they may, from their office
building clear out to their leasehold. And then above that is a
lighter shade, which are the burdens that are against the
operation, which primarily, are royalty and taxes that the state
does have control over. And so, the revenue as it's moving down
from the left to the right, is a function of production rate,
obviously, and value of the product that is being produced. And
both of those things have a direct bearing. Certainly, if it was
$40 oil that line wouldn't be as steep as it is, or if for some
reason, there was an ability to just continue to maintain and
maintain production, but both of those things, constant value and
decreasing rate, or decreasing value and constant rate, or any
combination thereof, is going to cause this line to come down at a
greater or lessor degree. And because of production history, and
value, those projections can be made. Now, it may be that there
would be, all of us in this room make our own projections and we
will probably all come up with a different rate that line would be,
but it certainly would be, I think, just as getting very fiercely
competitive companies to come to an agreement to form a unit, there
could be an agreement between legislature that is passed, the
commissioner's office as it were, and whoever is appealing for a
reduction in royalty. And the concept is that as this approaches,
whatever that, that value is for the top line, and it certainly
would be incumbent on both the company and the state to lower that
to extend the life of the fields. But, at some time, whatever X
may be agreeable to the commissioner and the company is, there
comes a time when you're just about to the point that continued
operation is going to cost you. You're going to lose money, as it
were. Prior to that time, or maybe at that time, maybe this X goes
to zero. I don't know. But, at that time, then it would be
incumbent that the applicant come to the commissioner and suggest
that maybe we can drop royalty, whatever the costs that are
available to him to extend the period of life and, and the line
shows a rather severe drop. In reality, that line becomes
asincotic(ph) to the economic limit as you get, it becomes nearly
parallel -- that's not a vulgar word.
(?): It sounds vulgar.
REPRESENTATIVE GREEN: But, it, it actually has a tendency to taper
off. It comes down sharply and then tapers off and becomes almost
parallel with costs, assuming costs stay constant. And so, a small
change, my point is that a small change in that point can extend
the field life significantly as has happened in the, in the Inlet.
A classic example there where they've been very close to the
economic limit for a long time. Continued operation is certainly
to the best interest of the state, in my estimation, both for jobs
that they do, the spinoff from that, the ancillary operations that
of with oil field operations. Certainly, something, even though it
be less than 12.5 percent reduction in royalty times something is
better than a high rate. Twelve and a half percent of zero. So,
that's the concept on illustration one, and if there are any
questions I would be glad to answer those before we go to
illustration two. You want to do both first?
CHAIRMAN ROKEBERG: Yeah.
REPRESENTATIVE GREEN: Okay. Illustration two is a slightly
different concept in that it's tied essentially to production. It
could also be income, but it might be a little bit more difficult.
And again, it's plotted against time. The concept here is that
company A comes to the commissioner and says, commissioner, we are
rapidly approaching a time, and I'm now pointing at about the
middle where this funny looking line goes up, curved line,
intersects the diagonal line, that we have to do something. We
either have to get ready to plug, or my board of directors has
agreed that I could spend X number of dollars to infill drill, to
add something, but that at the current royalty, I can't afford
that. It just doesn't pencil out. Now, if there were a way that
I could determine that by spending this money I'm going to get more
oil that I would, let's, let's use oil as an example. I'm going to
get more oil that I would if I just let this thing die a natural
death. If there could be a way that I could reduce that burden,
then I think my board of directors will allow me to spend this
money. And that again would be I think to the benefit certainly
from an AOGCC standpoint prevention of waste. You ultimately get
more blood out of the turnip as it were. And what this is a very
simple component that says that as you project this decline, under
current operations, without making this additional investment
you're going to come to a timeout here moving to the right of that
intersection, if you will, that say, one-eighth of the straight
line is equal to a lessor number, whatever that lessor number may
be, of royalty based on the curve line; the increased production,
so to speak. So that, in effect, the state could actually break
even here. They wouldn't get the curve line without the investment,
the company can't make the investment if they don't get a royalty
reduction. You could actually go from this, let's just take a wild
example. Instead of 1/8th it goes to 1/10th, or 1/12th royalty
because at sometime to the right of the word forecast those two
values would be equal. And from then on you follow down on the
lessor royalty on the greater production. And that's a concept
that works in other states. It's a concept that perhaps the
commissioner could utilize. And those are two examples that, that
are kind of the driving engine for 209. And again, it's not that
this should be a handcuff on the commissioner. It should be maybe
a standard, a reasonable expectation that if he then is able to
negotiate something else that's in the state's best interest it
would be a yard stick by which to measure and say, yeah, this is
reasonable. It's completely different than either one of these,
but it's certainly equivalent to, or in the best interest, and it's
not just some wild off thing that some people have had some concern
about. You've heard the word, there has to be mutual trust, and
this whole concept of partnering or working with, between the state
and industry, and sometimes that moving from one seat to the next
is a little scary. It's kind of like having one foot in the canoe
and one on shore, and you, you've got to get in the canoe, but
you're a little nervous about it. So this is maybe a, a way by
which you could move out into the canoe with a little more degree
of assurance that it isn't going to get crazy, or the state isn't
going to get taken to the cleaners. And again, we're talking about
mature fields here. So now, if there are any questions, I would be
glad to answer them.
Number 412
CHAIRMAN ROKEBERG: Representative Green, I just, these are
excellent graphs, and I want to compliment you. They're, most of
the graphs that we've seen or I've seen recently have the graph
going upwards 'cause they're driven by prices whereas this is the
reverse because of the marginal fields, 'cause you have costs here
as an element on this side against time. You've got a projection
here against time, and for example, in the Conoco case that was
before the department a number of years ago, they actually had
bargained an investment position here, so. I know in the, my
approach to try to micro manage this bill, we've discussed a number
of different scenarios and so forth, but I think you make an
excellent point that these things really need to be considered, so
I think that the commissioner, and please correct me if I'm wrong,
needs a certain amount of flexibility to be able to bargain these
things. I don't think even, would you agree that we can put these
into statute, or give specific direction? Isn't it better to have
a little more flexibility?
Number 429
REPRESENTATIVE GREEN: It definitely is in order to negotiate you
have to have negotiating room otherwise you just get pounded. So,
yes, I would certainly suggest that he has to have some
flexibility, and the only reason that these are offered is that it
would be perhaps a, okay, I'm going to agree to negotiate out here,
but this is the kind of thing that I'm going to have to judge my
negotiations against. That may or may not be advantageous. I
wouldn't say that it should be cut in concrete. It's just more
offered as, as, as I mentioned, bridging the gap between what, what
the legislature or the industry, or the commissioner, or any of the
parties might feel somewhat more comfortable with. They, at least
then have an idea of what they can expect.
Number 441
CHAIRMAN ROKEBERG: One more question from the, from the Chair.
If, as the bill is written now it has a, what I call an artificial
floor which is inserted because of the (indisc.) I'm not sure
(indisc.) characterize that as. It seems to me that this type of
a illustration shows the problem with that in so much as it does
have an artificial floor because in a marginal field it's not
inconceivable that you can get to zero and still would be to the
benefit of the state to have that deduction being produced.
Number 449
REPRESENTATIVE GREEN: It's not the intent of, my intent,
certainly, in 209, to establish a floor. I think that should be a
negotiable item and I think in light, he has that right.
Number 451
CHAIRMAN ROKEBERG: Wouldn't you agree that artificial floor gets
in the way of (indisc. - both talking)....
Number 452
REPRESENTATIVE GREEN: Absolutely. I think that's another, another
handcuff that limits his negotiability. And certainly, I think it
would, would ultimately end up with exactly what this is trying to
point out, as you did, that we would lose I would think if we
maintained that hard fast rule that he has that floor because it
may well be to the state's advantage. I could conceive of a
situation where you might even get to zero royalty and still be in
the state's best interest because of the ancillary spinoff of
continuing to operate. The state still has taxes, for example.
They still have jobs provided for people and that sort of thing,
and you get into the social aspect.
Number 462
CHAIRMAN ROKEBERG: Questions for Representative will...
REPRESENTATIVE G. DAVID: Mr. Chairman.
CHAIRMAN ROKEBERG: Representative Davis.
Number 463
REPRESENTATIVE G. DAVIS: Thank you. Representative Green, on page
two of your bill, line five, it states that, it's a two-year
initial production field report, that you consider field reduction.
Is that two years an industry standard, or is there any rationale,
or that just some number you came up with.
Number 468
REPRESENTATIVE GREEN: It's, it's an arbitrary number and the
reason that I would like at least two years. I think that's what
this, is that it takes a certain amount of time to establish any of
these projections. Two years is probably a minimum, certainly, if
you're really in a, in a marginal field you have been on for
significantly longer than that, or you probably made a poor
investment because you cannot develop a field for two-year life. I
can't imagine of any field that you would make the investment
necessary for less than two years. So, this is just by way of
saying, if you're coming in under this, this scenario, you've got
to be able to establish with some degree of reasonableness what the
future holds and that's going to take some amount of time.
Number 478
REPRESENTATIVE G. DAVIS: Thanks. I just wanted to make sure there
wasn't....
REPRESENTATIVE GREEN: No, it's not a hard fast rule at all.
REPRESENTATIVE G. DAVIS: Some professional engineering expertise.
REPRESENTATIVE GREEN: No, and it would vary because there are
fluctuations all the way along.
Number 482
CHAIRMAN ROKEBERG: Any further questions to ask? Representative
Finkelstein.
Number 483
REPRESENTATIVE FINKELSTEIN: Just, just, sort of an obvious point,
but how is it that you reach the conclusion that it's in the
state's interest to sell our oil or essentially give it away, and
the circumstance for severance taxes would be down to zero, or
almost zero, and royalties, if there was no floor on royalties,
what reverts to zero. Why would that be in the state's interest?
Number 489
REPRESENTATIVE GREEN: Why would that be in the state's interest?
If that is the way that you can prolong the life of the field, and
we're not talking a month or two, as I mentioned, these costs
become asinctoic(ph) that you can extend with a small change an
extensive amount of time, and so if, for example, you drop from
12.5 percent of simplicity, a hundred barrels a day, but that's the
economic limit, and we're going to shut the field in and lose from
there on. We don't have ten more years of life, and drop that to
five percent, or three percent of something that would then allow
the operator to continue the life of the field, we then would get
three percent of something, which is certainly 12.5 percent of
zero, or, even if that were zero, there are jobs to be created
which, in effect, allow people to spend money, provide services by
taxation on their homes that they can maintain, those sorts of
social aspects that -- this is money. Every dollar that's
ultimately comes into this state because of oil that's being sold
away has a chamber of commerce spin on it of, I don't know what,
but it's anywhere from three to five times it spins in our economy
before it goes out. That's to the state's best interest. At least
in my opinion.
Number 508
REPRESENTATIVE FINKELSTEIN: Mr. Chairman. Just another thing.
Sometimes they provide services through taxes, but few places in
the state most of the time they demand services when they cost the
state money, and we've got to remember that we need money to run
the state. The cost, if you had the permanent fund, is exchanging
your nonrenewable resources for some sort of wealth we can use in
the future because we only get this once, and I agree, the
principal applies a little better, as you point out, in the
declining field, but we're also talking here about starting up.
Number 515
REPRESENTATIVE GREEN: No, through the Chair....
Number 516
REPRESENTATIVE FINKELSTEIN: The concept I mean. I wasn't, the
concept of royalty reduction here and whether it's full or not
exists in the whole world of marginal fields.
Number 519
REPRESENTATIVE GREEN: Through the Chair.
CHAIRMAN ROKEBERG: Go ahead, Representative Green.
REPRESENTATIVE GREEN: I would take exception to that, and from this
standpoint then I think you make a very good point, and so many of
the things this state does when it encourages people to come in,
they quite often end up costing the state more than they provide.
Fortunately, for the state, most, if not all, of the full time
petroleum oriented jobs are those that benefit, those that
contribute rather than those that take, because of the salaries,
for one thing, they actually, and the chances are where they live,
their tax rate, if it's like in Anchorage, your house tax rate
helps to defray costs. It's a benefit to the state rather than a
detriment, but I think your point is well made in so many cases.
CHAIRMAN ROKEBERG: Representative Brice.
Number 529
REPRESENTATIVE TOM BRICE: Thank you, Mr. Chair. Once this
leveling off has occurred, is, how long generally, or is there a
general length of time, I mean, that production might be able to be
maintained above the economic factor, the limiting factor?
Number 534
REPRESENTATIVE GREEN: Well, that, that certainly is a function of
how closely paralleled those lines would come. From the,
unfortunately, from a standpoint of Alaska, from fields in say
North Texas, shallow fields where they can be innovative, those
things last decades where there are very marginal profit, but they
can produce for years, and years and years. Here, it would be less
but it still would extend the field, such as has happened in the
Cook Inlet. I mean, they have been so close to economic, as you
know, there are several platforms already shut in. There are
others that they just are hanging by their finger nails and with a
slight reduction maybe they can get a hold.
REPRESENTATIVE BRICE: Yeah. Exactly.
REPRESENTATIVE GREEN: So, how long that, that would depend on
each, each...
Number 545
REPRESENTATIVE BRICE: But there are, there are instances where it
goes quite a ways.
REPRESENTATIVE GREEN: Yes.
REPRESENTATIVE BRICE: There are instances where, as the technology
develops those fields can be extended even longer and longer, and
provide stability within the labor force for those folks.
Number 548
REPRESENTATIVE GREEN: If I might digress, Mr. Chairman. One
example of, of one of the things that has happened, and I think
it's very appropriate that you mention technology. This old
blister worked in the oil patch when you had to make connections
every time you ran a tubular good in or out of a hole, you had to
make connections, but in the last several years they have
protected, perfected, pardon me, a system called coil tubing, and
they not only can go in and blow fluids in, they can actually put
a motor, or a hydraulically driven pump, motor on the bottom in a
bit and actually do well work with this coil tubing. This
significantly reduces the cost of working a well over, which
maintains the well's life and that sort of thing. So, yes, you're
absolutely right. If we can extend it five years maybe -- it's the
same sort of thing with a cancer patient, you can continue his
life. They may come through with something.
Number 561
CHAIRMAN ROKEBERG: Well, thank you, Representative Green. It's
the desire of the Chair to hold over any further testimony on the
House Bill 209 at this time. And perhaps, if necessary, take it up
further and as you indicated, look to perhaps integrating it in
207, or whatever the committee feels is appropriate. And I'd just
like to comment that from old blister to another old blister, that
the chair wants to thank you very much for the input you've had in
this consideration and we look forward to your advice, counsel and
so forth in the future on this and want to thank you very much.
REPRESENTATIVE GREEN: Thank you, Mr. Chairman, committee.
CHAIRMAN ROKEBERG: Next the, we'd like to hear from Mr. Bradley
Penn, please.
Number 572
BRADLEY PENN, ADVANCED LANDSMAN for MARATHON OIL COMPANY: Mr.
Chairman, members of the committee. We appreciate the efforts of
the legislature to develop incentives to encourage investment or
development of marginal fields, and to extend the life of mature
fields. Marathon has previously testified before the Senate
Resource Committee that there are currently statutes and
regulations providing for royalty relief; however, this legislation
has been ineffective in providing royalty relief. I'd like to
probably give the example, and further, Representative Green's
charts, if I may, by an example of called the North Trading Bay
Unit in Cook Inlet. There are two platforms in this unit. The
Spark Platform and now we call it the Spur Platform. It was
originally the Texaco A Platform, and this will show from Mr.
Green's illustration in number one how that revenue line goes into
the black below zero and how a royalty reduction would give the
state, or would have given the state something, a percentage of
something as opposed to having the well shut-in now, and no
revenue. I'll just go through a little chronology of what happened
in North Trading Bay. The two platforms were put in in the mid-60s
and started producing '68, '69; one put in by Texaco and the other
put in by ARCO. In 1982, Texaco submitted an application and, if
I may just back up a minute, I don't know if you have the packet
starting with a letter from DNR to L.R. Dartez or Marathon, and
there are about 25 pages.
CHAIRMAN ROKEBERG: I believe it was handed out this morning.
MR. PENN: Okay. And if you start at page 25 and work forward,
that's the Texaco application, and then as we work forward, the
Marathon application. In '82 Texaco submitted that application and
that was the sole extent of their application. The Division of Oil
and Gas asked for more information under the existing statutes.
Texaco felt that it was too time consuming and, and too much of an
accounting burden to get that data and did not pursue the royalty
reduction application. In 1985, Marathon obtained the Spark
Platform from ARCO and produced that platform. In 1988, Marathon
and Unocal purchased the other Texaco A Platform from Texaco and
renamed it the Spur Platform, so in some of the correspondence you
will see Spur Platform. And in July of 1989, Marathon applied for
a royalty reduction in the North Trading Bay Unit. In March of
1990, I think flip to pages 7, 8, 9 of the, in the lower left there
are numbers and they probably are the key items, but applied for a
royalty reduction and in March, the DNR Division of Oil and Gas
responded that our application was insufficient. And, if you look
on page seven, you will see the legislation that was in effect at
the time and under 38.05.180J, the last line reads, "A reasonable
rate of return with respect to that lessee's total investment in
the field." Then we go to the regulation on page eight, and number
four reads, "...contain the detailed statement covering the entire
life of the lease." So there seems to be something handcuffing the
director of the Division of Oil and Gas in the legislation that was
passed and the regulations that were promulgated as to how much
information you have to submit. The outcome of the Marathon
application was that we requested clarification of the March letter
in July of '90. The director responded that we needed the entire,
or complete revenue costs and expense data from not only Marathon,
but from ARCO and Texaco dating back to 1965. And....
Number 635
CHAIRMAN ROKEBERG: Excuse me, for the record, 1965?
MR. PENN: Yes. From....
CHAIRMAN ROKEBERG: Fifteen years?
Number 637
MR. PENN: At that time, right. And at that time we were, it was
just, we wrote letters to ARCO and Texaco, I think after they
divested themselves of the property they got away, they disposed of
the financial documents and so we could not pursue that avenue
concerning that request. What this shows is that here we are
approaching, or you know, asking for royalty reductions so that
line doesn't hit zero. And then, in 1992 Marathon, that line went
below zero, or had continued to go below zero and we asked the
Department of Natural Resources, Division of Oil and Gas in our
plan of development for a suspension of operations and production,
and that was granted. The top letter is the grant of that. There
have been subsequent extensions of that and so, right now, as I
said, this is an example showing how we tried to use the existing
legislation statutes the state might have extended the life of the
field getting some percentage of production as opposed to shutting
it in and getting no, no revenue from the field. The oil
production from the platform is shut in and I doubt since it's been
shut in since '92 that it will ever come back on. There would have
been, even if the royalty was zero, two people or more per platform
plus people on the onshore production facility having jobs, full
time jobs and shifts as opposed to having to lay those people off.
Talking specifically to the bill now...
Number 661
CHAIRMAN ROKEBERG: Mr. Penn, let me, could I just backtrack
slightly here to the correspondence you provided us? The,
referring to the March 28th letter where, I think that letter from
I believe Mr. Eastman(?) to Mr. ...
MR. PENN: Kukluff(sp)?
CHAIRMAN ROKEBERG: ...Kukluff(sp), yeah. It points out the
statute and it also points out the regulations which are in
existence as of this date. But, what I would like to know is your
opinion as to the attachment, which is called "The Information
Sheet on Application for Royalty Reduction" and handwritten page
ten. It seems to me in a cursory reading that the requirements of
the contents of application far exceed those which were required
under statute and the written regulations, and I would like to, is
my statement correct? Or how would you interpret that?
Number 675
MR. PENN: I think that's, I think that's a good perception of what
the information sheet provides when you look at both, or all three
of the statutes, the regulations and the information sheet. I
think, and I'll have to reiterate what Representative Green said.
You have a statute, you have to allow some discretion to the
director because there are different cases. You've got North
Slope. You've got Cook Inlet. You've got onshore. You've got
offshore. You've got oil and gas and so it's going to be hard to
pin down one formula that will work for royalty reduction. So, you
have to have, I don't think you can overly constrain the director
or the commissioner, but you also have to have the checks and
balances, I think. And in that light, I, one thing that I, you
know, our experience has shown that there was an interpretation
that data had to be provided for the entire life of the lease as
opposed to the statute reading "...from the lessees interests in
the lease." And I guess to clarify that we'd like it to read that
the lessee shall be required to submit data for a royalty reduction
application for the two-year time period preceding an application
it has owned an economic interest in the field. And we think that
that's just a first wash out to the committee, but that may solve
some of the problems with interpretation of how much data, how much
financial data. I was talking to people, well, can we say, can we
give all of our financial data from a field, and we've been
operating the Trading Bay Unit with Unocal since 1965, 1962 and
we'd be hard pressed to go back in our archives to find that
financial data specific to reduction. It would be easier if we
find it with tax returns and financial returns and the records
retention associated with those. It appears that HB 207 does not
resolve the problem of the discretion of the commissioner or the
director of the division of oil and gas.
TAPE 95-12, SIDE B
Number 000
MR. PENN: ...the commissioner or his delegate, or director a
certain amount of latitude, but we're a little hesitant to have
that nonappealable in some form or fashion and we would suggest
judicial would review.
Number 008
CHAIRMAN ROKEBERG: Excuse me, Mr. Penn. You're talking about the
applicant in the event his application was rejected? Is that what
you're....
Number 014
MR. PENN: Yes, I believe, excuse me while I find the....
CHAIRMAN ROKEBERG: Well, I understand, yeah, we know that's on
the....
MR. PENN: Third or fourth page.
CHAIRMAN ROKEBERG: Nonappealable, that's the way it's written out.
Number 025
MR. PENN: We, if, and all I'm saying is for balancing, if you're
going give the commissioner more discretion, which in certain cases
should have them, then at least have a mechanism for appeal so that
discretion isn't abused. Finally, talking about the other aspect
that Representative Green was talking about, and that's marginal
fields. I, I've been talking about mature fields, but for marginal
fields instead of allowing the commissioner to increase or
otherwise modify the state's royalty, I think we'd like to see a
sliding scale royalty based on product price increases and
operating costs. There seems to be an arbitrary authority when you
allow the commissioner to increase and let's say you had a marginal
field, you went in and the existing royalty is 12.5 percent. You
went in for a reduction because your economics showed it was
marginal. You started producing, prices went up and the
commissioner could, or the director could increase your royalty to
50 percent, and if there's no limit on the raising royalty or the
time for that, and we think there should be some type of quid pro
quo on, on the reduction. So, we think that a sliding scale based
on those factors would, would be more, or less arbitrary. That
concludes my comments, and Marathon appreciates the committee's
effort and those of the legislature to encourage new investment and
provide relief for mature fields in the state. And I would be
happy to try to answer any questions.
Number 057
CHAIRMAN ROKEBERG: If I might, we have several people on
teleconference I want to get in, and if the committee will bear
with me If I could ask a couple of quick questions, then we will go
over some of them. How would you define a mature field? In the
Cook Inlet needs to be, that's one of the problems we have in
looking at this particular bill here. There's no clear distinction
made between a new field and a mature field and I can see some
pitfalls now, downstream here. I mean, what, what, would you have
a recommendation about that?
Number 069
MR. PENN: I think that Representative Green's illustration number
one would help in that it's a matter of revenue. The time frame
could be five years you produce the field and it's at its economic
limit. It could be 35 years like we're approaching in the Cook
Inlet. It's a matter of the reserves that are there and not so
much a fixed time period but Cook Inlet anything over 20 years are
mature fields that we have in Cook Inlet.
Number 082
CHAIRMAN ROKEBERG: Just for the record, I want to correct my math;
that should have been 25 years and Mr. Brice not, (indisc.) he's
sitting here then, right? The, would you have a recommendation or
a thought about trying to define a mature field though? What would
that be, like 25 or 35 years or something like that?
Number 087
MR. PENN: I think it falls into that category, but I said, also
said a mature field might be one that's only produced for ten
years, but you produced all of the reserve, so it, I think....
Number 090
CHAIRMAN ROKEBERG: So there's need for flexibility. You'd rather
be date specific on that.
MR. PENN: Right.
CHAIRMAN ROKEBERG: And then, just to go back to the circumstances
revolved around the North Trading Bay, would you characterize the,
how would you characterize Marathon's reaction to the demands in
the application letters, demands, or I should say the stipulations
in that letter? Did you, did Marathon make a decision not to
pursue further?
Number 109
MR. PENN: Well, I'd like to refer you to page nine of the packet
in that Marathon went into the application knowing that there was
previous production and accounting and cost data, and in our first
sit down meeting we said, we don't think we can get this from ARCO
and Texaco if you request it back to day zero, and that was one of
the items that we predicated the application on. And the, you
know, in the March letter they're saying that even though we might
have had those conversations we were required to provide
information for the entire length of the lease. So we, I guess we
felt we spun our wheels a little bit with what we thought we were
going to do and the data we were to provide once we were asked to
provide ARCO and Texaco's data we knew that, one, we couldn't, the
likelihood of getting it was very small. It would be the other
way, if we sold the platform, we wouldn't have the data to give
someone else, you know, back to day zero. And then, two, as time
went on, that revenue hit and went below the zero line. And so it
was a combination of factors.
Number 136
CHAIRMAN ROKEBERG: So, the net result of that, as I think I
mentioned the other day, and I'd like you to verify that, was that
you did not pursue the application any further and made a decision
and got permission to shut in that oil producing zone, and if you
had different circumstances or a reduction was granted, it's
conceivable that field could be producing today. Is that a correct
assessment?
Number 146
MR. PENN: I'm not sure that it would still be producing, but it
would have, I'm assuming would have extended the production life of
that field.
Number 148
CHAIRMAN ROKEBERG: And so (indisc. - coughing) then existing
statute and the regulations together with the commissioner's
requirement for the application stifled, or caused that field to be
shut in more prematurely. Is that a fair statement?
Number 152
MR. PENN: Without instituting a royalty reduction it did not
lengthen the life, oil production from that unit.
Number 154
CHAIRMAN ROKEBERG: I mean, okay, but that's why we're doing this
bill here.
MR. PENN: Right.
CHAIRMAN ROKEBERG: That's, so there's, this is an instance here
that (indisc.) possible add some extended production and income?
MR. PENN: Yes.
CHAIRMAN ROKEBERG: Any questions of the committee? Representative
Brice.
Number 161
REPRESENTATIVE BRICE: Could you, you had made mention about the
appealability by the applicant to the judicial branch on the
decision made by the commissioner. I guess I'm wondering if you
could expound a little bit on that because I'm a little confused in
that it's my understanding what we're trying to do here is to set
up a negotiation process whereby two people go in and talk about a
contract versus some other form of, you know, taking place between
the state.... I see industry and the state negotiating as equals.
I think when we're saying that the applicant can take that, those
negotiations to court that there's going to be some hesitancy, some
problems there. Do you think it might damper the state's desire
to, to even enter into these types of negotiations?
Number 188
MR. PENN: I guess in that aspect, what I was talking about was
giving the commissioner and the director more discretion, but with
that discretion is judicial review.
REPRESENTATIVE BRICE: Uh-huh.
MR. PENN: And I think you have that currently. The problem
currently is that the commissioner and director are also tied up
with trying to interpret the legislation, the regulation...
REPRESENTATIVE BRICE: Uh-huh.
MR. PENN: ...and then information sheets that in some instances
seem contradictory.
REPRESENTATIVE BRICE: Okay.
MR. PENN: And that was a package. I wasn't saying that we wanted
to negotiate state, company and then appeal it.
REPRESENTATIVE BRICE: Okay.
MR. PENN: From that, that interpretation, but it wasn't what I
meant.
REPRESENTATIVE BRICE: Okay. Okay.
CHAIRMAN ROKEBERG: Any further questions? Representative
Finkelstein.
Number 205
REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. The
conclusion in that last question from the chair was that it was the
existing rules that have kept this from, or caused this well to
shut in, but in the existing law isn't the real problem here in the
case of the, that you just laid out, is the provision that requires
the historic analysis. That one provision is what bogged down the
consideration here that we wouldn't, didn't get to see how the rest
of the provisions would work because you couldn't get past that
hurdle for lack of (indisc.).
Number 217
MR. PENN: Right. And, and what I'm, I guess what we're saying is
it doesn't matter what someone else did. It's the two years of
production and, and the lessee. So, I guess we interpreted it when
someone takes over a lease of a platform they're a new lessee and
it's the history of their, it doesn't matter what investments and
return ARCO and Texaco got because you were getting, the state was
getting royalty. They were getting revenue and investments were
being made. At least that's our opinion, to clarify.
REPRESENTATIVE FINKELSTEIN: But, just, I think you made your point
well. The, I was just was clarifying that the whole problem...
MR. PENN: Yes, the crux here.
Number 228
REPRESENTATIVE FINKELSTEIN: ...(indisc. - both talking) is the
words 'reasonable rate of return' and in respect to the total
investment in the field, which it allows in the historical
analysis. That was the problem right there.
MR. PENN: Well, I think it's the interpretation of that.
REPRESENTATIVE FINKELSTEIN: If that was changed that would have
resulted in a different treatment.
MR. PENN: Right.
REPRESENTATIVE FINKELSTEIN: Thank you, sir.
Number 234
CHAIRMAN ROKEBERG: I'd like to go on to the teleconference now and
unless there's any further questions, and Mr. Penn, hopefully you
will be available for any other questions or testimony. I want to
thank you very much (indisc. - coughing). I'd like to welcome
everybody that's listening in Anchorage, Fairbanks and hopefully,
Soldotna and other places around the state. And I would also
specifically like to apologize to the people in Fairbanks.
Yesterday, we had some communication breakdowns and I asked for
testimony to find out if anybody else wanted to testify, but I did
not have, or did not know you were up there listening in, and I
want to apologize. As a result, I'd like to start out with
Fairbanks and ask for the presentation of Mr. Richard Fineberg, and
indicate also, Mr. Fineberg, we do have your written testimony in
hand. So if you would summarize it and tell us your concerns.
Number 252
RICHARD FINEBERG, Fairbanks (Teleconference): Thank you, Mr.
Chairman. This is Richard Fineberg here in Fairbanks. Since you
have my written testimony I will summarize by saying that I have
little concerns of the (indisc.). The rest of the legislation as
well as the confidentiality and appealability provisions. I will
not take you through my text, but I'd like to deal with a closely
related subject that I think bears directly on HB 207. Since
leaving the Governor's Office in 1989, every two years or so I have
reviewed the North Slope's production trends using state data.
Most recently I did so last month. I summarized the results in two,
in two graphs, which I shipped to the committee and staff this
morning with the work tables from which the graphs were derived.
Does the committee have those graphs at this time, Mr. Chairman?
CHAIRMAN ROKEBERG: Yes, I believe we do, sir.
MR. FINEBERG: Okay, thank you. I very much appreciate the
staffing and your courtesy, sir. These are very elemental circles,
straightforward and tabulations of state data. I used the
Department of Natural Resources for the reports, but I believe the
Department of Revenue data would show the same trend. I used
PNF(?) for specific reasons of simplification. With regard to the
assertions, which seem to be taken as fact that the marginal fields
just don't pencil out, the historical and current data indicates,
to me at least, this is the burden of truth that we approach the
intersection of marginality on the North Slope. Should we whip the
industry and the administration? I believe that case has not been
made. What the two large graphs (indisc.) are showing is that on,
reviewing North Slope production forecasts and productions decline,
although real, consistently plays out more denying (indisc.) and
forecasting. Specifically, if you will compare the 1980 (indisc.)
forecast to the current forecast for production for 1989 through
the year 2010 you will find that we never expect produce 3.75
million more barrels of oil through 2010 than we forecasted for
1985. Let me restate that. Over the last 10 years, the current
chance of royalty regime has generated five more years of
production at two million barrels per day than was forecasted in
1985. Each two years we booked one whole year of new forecasted
production and surpassed maximum (indisc.). This, this has trend
a slow decline was established in the face of declining (indisc.).
More importantly, (indisc.) continues to today despite the dire
predictions by the industry and professional observers in the late
1980s. That we obtained the of such entries of that time to
demonstrate that it continues today is why you have my graph B2 of
1990, or my table B2, which I did not graph. That shows that the
trend is still continuing today. Basically, the increased
production I am referring to is the difference between the grey bar
in the graphs of one and two, and the white bar. These are data
which are just simple tabulations state data, lead me to the
conclusion that it remains to be demonstrated, but this, this
legislation is (indisc.) either necessary or it reflects the lines
of the stewardship of the public resources mandated by the
Constitution. I'd like to point out, obviously, that, that any
bill that increases industry revenue at the expense of the state,
state treasury, would tend to stimulate production. The industry
will abdicate such a measure. That does not mean such legislation
is necessary. In conclusion, I'd like to make one very quick point
with regard to Representative Green's testimony and that, of
Marathon's Mr. Penn. I don't wish to be argumentative. I'd like
to clarify for the committee. Number one, with regards to
Representative Green's excellent illustration number one, which I
received by (indisc.) fax here, and I'm very grateful to receive
it. (Indisc.) we're looking at the North Slope in the, in the plus
line for BP and Badami, which is probably the case in point here.
The irreducible company operating plus below the line would, would
include the (indisc.) lessor pipeline, which has a comfort element
of roughly one dollar per barrel; a guaranteed stable profit
element. That's a joker that belongs in your North Slope deck that
doesn't show if you only consider the fields. Number two, Mr.
Penn's examples from Marathon are very probably valid. I did a
report on Cook Inlet profitability in the summer of '94. You
should note though that Cook Inlet is an entirely different kettle
of fish from the North Slope as I'm sure you know, but sometimes we
lose sight of the forest for the trees. Basically, the revenue
above the line in Mr. Green's figure one, again, is, and on the
North Slope, roughly one hundred times that of Cook Inlet in the
aggregate, and that would probably break down for a field
comparison, probably your North Slope marginal fields are one
larger of magnitude, greater, speaking very roughly, a full order
of magnitude greater in the revenue generation than historic fact
lore to which Mr. Penn referred. Again, I don't wish to be
argumentative, I just wish to be sure that the committee is not
getting overwhelmed with, with language and failing to see the
broad parameters of the data, which I believe my graphs
demonstrated. I thank you very much for your time and your
courtesy, Mr. Chairman.
Number 398
CHAIRMAN ROKEBERG: Thank you, Mr. Fineberg. I appreciate your
testimony and all the efforts you've put into this, and I assure
you we will review your written testimony. I have one question and
one only, for myself. That is to say, with your knowledge of the
production forecasting and so forth, can you tell me, or do you
have a, that the state, whether the state forecast, or how much the
state forecast include new or non-producing fields for their future
forecasting.
Number 407
MR. FINEBERG: I can give you a rough answer. If you look at my
table three that came down this morning, B3, which from my February
22 report, you can see that the older fields not producing right
now that are in the forecast is West Sak. In general, the
forecasts are structured conservatively to deal with both
production identified at current technology, and forecasted from
that technology. They are not presuming continued technological
gains, and part of the reason for that is that if the forecaster
said, oh, we can ration this us 20 or 30 percent because
historically, that has been the case. You would wind up shooting
the forecasters when you had a revenue of, rather than shortfall.
The forecasts are conservatively constructed and maybe correctly
conservatively constructors. In terms of long range of planning,
however, that does mean that we're not considering when we look at
wrong forecast data the probability which I think my new data,
again, when you compare '90 to '95 block, shows there will be
continued technological gains like the (indisc.) that
Representative Green referred to. I'm not sure if that was
responsive to your question, sir.
Number 434
CHAIRMAN ROKEBERG: It was right on the mark. Thank you very much.
(Indisc.) questions?
REPRESENTATIVE FINKELSTEIN: Mr. Chair.
CHAIRMAN ROKEBERG: Representative Finkelstein.
Number 435
REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chair. Just two quick
ones. Did the, taking the circumstance as it is now, the way the
law stands at the current time, and not referring directly to the
bill, would it make sense from your point of view to extend the
royalty reduction provision to new marginal fields rather than just
fields that are on their way out?
Number 443
MR. FINEBERG: Mr. Chairman and Representative Finkelstein. I am
a bit baffled by the language of the bill, and I believe the
current statute falls under the Rube Reg, if it ain't broke don't
fix it. I am not clear that broader language would serve a
constructive purpose in terms of management of the resources at
this point.
Number 450
REPRESENTATIVE FINKELSTEIN: Mr. Fineberg, if, the last question
is, the, you know, testimony indicates that of the two applications
for existing royalty reduction requests or royalty reduction
requests under existing law, one of them failed because of the
requirement of historical information when it didn't exist. The
other was the Milne Point case. From your point of view, is the
reason that the royalty reduction hasn't been used before, is it
just fact that royalty reductions are a small factor compared to
the price of oil, or is there something else out there that's led
to them not being used?
Number 458
MR. FINEBERG: Mr. Chairman and Representative Finkelstein. Let me
break that down. First of all, with regard to the historical and
formation question. Should it be the case that DNR is on..., or too
onerous and not correctly interpreting the regulations and the
statute and the (indisc.) that the representative believes. I
would very cheerfully say that that is one of the reasons that
(indisc. - static) and oil and gas, and administration should be
(indisc.) by your legislative audit with much more attention, and
that's not a statutory matter that you need to fix. The chance of
the historical information. I cannot read the industry's minds and
cannot tell you why various companies have or have not come forward
in the past to request statutory royalty relief. With regard to
Milne Point, I believe you were coming very close, Representative
Finkelstein, to a significant issue in the barriers to increase
production in the future, two, two days ago in the discussion of
Milne Point I indicated in my written testimony, but I would be
delighted to back up in greater detail. When you look at the map,
that Milne Point is going gang busters at this point without
royalty relief, yet, yet Conoco has requested and been denied
royalty relief some years, years back. What is the difference
between Conoco and BP? The single material difference, the largest
one I submit is that Conoco was the only field operator that did
not own a share of the TransAlaska Pipeline; therefore, that one
dollar in concept to be paid was paid by Conoco. It's an handicap
that for BP is a profit, which is why, why the pipeline product is
below the line in Representative Green's excellent figure one. As
to whether the industry will request royalty relief now, I am
mindful of an old proverb I believe to be Gingrich, which while the
Governor was in Great Britain recently, I (indisc.) he heard, it
certainly doesn't seem like it, it goes to the effect: the jackals
ne'r try, but the lambies nearby. You'll have to translate, and
you will, I submit at this point that we are the lambs and, of
course, we're going hear that cry. Whether this is the boy who
cried wolf or the wolf is really at the door, again, the crux of my
testimony is that I've not seen a clear and convincing case that
the wolf is really at the door. I only only heard the rhetoric and
that is one of the reasons I am very troubled by the
confidentiality provision the administration included in this bill.
REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman.
Number 518
CHAIRMAN ROKEBERG: Thank you, Mr. Fineberg. We appreciate your
testimony. Now, I'd like to...
MR. FINEBERG: Thank you, sir.
CHAIRMAN ROKEBERG: ...hear from Mr. Kevin Tabler. He just blew
in.
KEVIN TABLER, Land Manager for Union Oil Company: It's balmy
weather here. We had eight inches of snow and two degrees in
Anchorage.
CHAIRMAN ROKEBERG: Well, thank you, Mr. Tabler, for coming. We
appreciate the efforts you did to get here. Please state your name
and affiliation for the record, please.
Number 520
MR. TABLER: Yes. My name is Kevin Tabler. I'm land manager with,
for Union Oil Company of California out of Anchorage. Good
morning, Mr. Chairman and members of the Oil and Gas Committee. I
appreciate this opportunity to be heard today and to present
Unocal's comments on House Bill 207. First, I'd like to say that
we are very encouraged with the with the positive atmosphere and
effort expended thus far by the legislature and the administration
in trying to develop incentive legislation to enhance and stimulate
further exploration and development throughout the state. We
recognize and appreciate the concerted in depth effort being made
by your committee to fully assess the utilization applicability of
this bill prior to subsequent referral. This time spent early on,
understanding the implications of the bill and providing the
opportunity for intended users to clarify and augment specific
sections will greatly enhance its acceptability and help ensure its
passage into legislation. By broadening the applicability of AS
38.05.180J we believe this bill is a step in the right direction
towards revising existing statutes. This approach provides
additional opportunity for certain marginally economic fields to
compete both internally within a company, and externally on a
global basis. But, before I address specifics under Section 2, I'd
like to make a brief comment about Section 1. Unocal is taking a
neutral position on this, on the appropriateness or need to revise
the funding mechanism previously established for the Alaska
Permanent Fund under AS 37.13.10A. The sharing of revenues and
proceeds derived through leasing exploration development of the
state's mineral wealth split between the permanent fund and the
general fund is not the focus of our analysis of this bill. Our
focus and concern of this bill is one of clarification, the
administration and utilization as it pertains to our Cook Inlet
operations. Now, on to Section 2. Last Thursday, I listened to a
discussion during the first hearing on this bill regarding the need
to define the term "field." Bill Van Dyke did an excellent job of
explaining the differences between fields, pools, horizons and the
delineation of same. In the context of the applicability of each
regarding this section, to help clarify and more accurately
describe the aerial extent of an accumulation for which this
section would apply. We would offer the following suggestions: On
line 29, page two, after the word "field" we would propose to
insert "pool or portion of a field or pool." Incidentally, that
happened to be I think word for word, verbatim, what DNR had
proposed, or the OGCC. On line 30 we would suggest that the word
"and" be eliminated and the words "a producing" be inserted between
"of" and "oil." This would help clarify that these, we are talking
about existing producing fields. The same wording as suggested on
line 29 would apply after the word "field" on line 30, and that
would be "pool or portion of a field or pool." The application
here is that the AOGCC has clearly defined pools and separate
horizons or zones associated with any recognized field. As I
mentioned, similar testimony was provided Tuesday, and we would
support their modification. Our second comment is related to lines
eight through ten on page three. As a condition of evaluating an
application and data, the commissioner may require the lessee to
pay the cost of contractors selected by the commissioner to assist
in the evaluation. We feel all attempts should be made to utilize
existing DNR staff wherever possible to reduce these costs. On
last Thursday, the commissioner indicated the intent of this
subsection was to have mutual agreement between the applicant and
the commissioner as to the selection of contractors. We believe it
is important to spell this out in the bill. Equally important is
the need to mutually agree on the cost contemplated for
expenditures by lessees prior to the hiring of a contractor. For
extremely marginal properties, such as our Stump Lake unit property
in Cook Inlet, the cost of hiring a consultant, and we'll say at
around $20,000, which is a very likely amount, could eliminate most
of the benefit derived from royalty reduction. This bill currently
has no cost control measures. Alternatively, we heard from
Commissioner Dave Johnson of the AOGCC on Tuesday, recommending
that the applicant hire and pay for the contractor in support of
its application to control costs. The commissioner of DNR would
provide a list of contractors that would be acceptable to DNR and
the applicant would then have the ability to select from for their
analysis. This approach makes the most sense in that the company
would then be able to negotiate the best price and thereby have
some control on the costs. We would support this concept. This
preferred approach would also eliminate the need for the costly and
time consuming RFP process DNR would have to employ. The
elimination of the reasonable rate of return criteria on lines 13
through 17, page three, is a positive step in cleaning up the
statute. This determination is too subjective and open to debate.
It is unrealistic to think that common agreement will be reached by
and between the parties. This requirement is unnecessary and
therefore, is better left out of the bill. We need a very clear
understanding that modifications made to existing statutes do not
inadvertently have a debilitating or limiting effect on the mature,
marginally economic future development of Cook Inlet. There is a
monumental difference between the exhausted fields typically found
in Cook Inlet as opposed to those on the North Slope. The next two
comments are very important to Unocal and its operations in Cook
Inlet. But, first, I'd like to give an example of one economic
reality involving our platform operations. Four of the ten Unocal
operated producing platforms produced less than 2,000 barrels of
oil per day each. One produces less than 900 barrels a day.
Expenses on all these properties make them marginally profitable.
In an effort to increase production, Unocal committed over 800
million in capital investments over the last two years with a
potential to spend an additional 31 million in 1995 on these four
platforms. At this point, it is difficult to commit additional
capital to develop these properties due to their short remaining
platform lives and marginal profitability. Reducing or eliminating
state's royalty on these marginal properties could make the project
economically viable and significantly increase the economic life of
the platforms thereby maintaining employment and the associated
community benefits. For fields or platforms facing abandonment
today, such as a platform with less than a thousand barrels of oil
per day, complete royalty relief is warranted. These properties
provide minimal income to the state and complete royalty will
instead, extend field life and employment by several years. Lines
17 through 21 provide for a modification and a change to the
existing statute, limiting the commissioner's ability to reduce
royalty by specifying certain limits. We propose this additional
language and limitation be taken out in its entirety. We believe
it's in the best interest of the state for the commissioner to have
the flexibility to reduce royalty down to zero as currently
provided. Given a finding on the part of the commissioner,
supported by financial and technical data, which demonstrates the
benefits of such action, is warranted. Lines 23 and 24 need
revisions to eliminate the unilateral right of the commissioner to
increase royalty beyond the state's original royalty share prior to
any reduction on a previously producing margin, mature field, or
re-establishment of commercial production of shut in oil and gas.
The big upside potential of a field, as discussed last Thursday,
and again on, in Tuesday's hearing, only applies to the delineated
but not previously produced fields where one may reasonably expect
a pleasant surprise. A previously negotiated change in royalty, at
the time of initial reduction, would, under strict criteria, may be
warranted in the case of a delineated field, but not yet previously
produced field. Bids were made on leases and evaluated on known
parameters and an economic analysis at the time of bidding.
Companies need the opportunity to evaluate any royalty change
upward in light of field economics and overall company economics,
and agree to any royalty modifications prior to committing manpower
and capital to a project. It is not realistic to anticipate that
mature producing fields hold the same, the same type of promise.
For the commissioner to have unilateral authority to increase the
royalty rate to whatever level beyond the royalty originally
specified in the lease, is not warranted in these mature fields.
For mature fields the impact of price only affects existing,
extending field life. If we are opening ourselves to the
possibility of higher future royalty by applying for a reduction
today, we may be eliminating the incentive to apply, to apply.
Companies need certainty for planning and capital commitment
purposes. Lines one, or line 1 on page 4 indicates the
commissioner's decision regarding a request is final and not
appealable. This really is no change from the current statute. If
this provision is a concern to the committee or the legislature
then perhaps a peer review of the decision could be conducted. In
Tuesday's hearing the AOGCC provided a couple of alternative
approaches to address the concern of oversight and appealability,
both of which would be acceptable to Unocal. In conclusion, we
believe this bill has the potential to add certain attractive
parameters to the administration of the royalty reduction process.
For Unocal, at this time, this bill...
TAPE 95-13, SIDE A
Number 000
MR. TABLER: ...difficult to support in its current form. With the
changes we have proposed, we believe the interests of all parties
are protected, while at the same time, afford the commissioner the
discretion he is entitled under current statute. Unocal already
has in place a vehicle under current statute to address the
concerns of its marginal fields in Cook Inlet as they reach their
economic limit. Albeit, not an ideal vehicle, at least one which
is less onerous than that which is proposed. Although we like the
ability to expand the applicability of the statute and eliminate
the requirement for a subjective reasonable rate of return
determination, the potential for increased royalty beyond that
which was originally agreed, and an arbitrary floor placed on the
amount royalty may be reduced eliminates flexibility and hurts our
efforts towards field life extension in Cook Inlet. We look
forward to working with the legislature as this bill progresses
through the legislative process, and I thank you for the
opportunity to speak today.
Number 028
CHAIRMAN ROKEBERG: Thank you, Mr. Tabler. Before we go on I just
want to verify whether there is anybody on line that has not signed
up to testify. Just to make sure that.... According to my
information, there is nobody there, and for the record I'd like to
show that Mr. Rick Smith of VECO had been in attendance to testify
and had to leave the Anchorage LIO, so, for the record there.
Going on, I'll open up with a couple of questions here, and you,
you refer to this vehicle under current statute, what, what are you
referring to there?
Number 041
MR. TABLER: Well, it's our, our interpretation that the, that the
current statute or regulations provide the mechanism for the
commissioner to reduce royalty down to zero, if need be. If, if
requested, an applicant would recruit request and force a
determination be made that is to the best interest of the state.
Number 049
CHAIRMAN ROKEBERG: It's my understanding, in your testimony, you
were saying that the existing J provision, if you will...
MR. TABLER: That's correct.
CHAIRMAN ROKEBERG: ...would be more favorable than the new J one
as, as proposed by the Governor. Is that, that's your testimony.
Number 054
MR. TABLER: Yes. That's correct. As, as I see this...
CHAIRMAN ROKEBERG: As it's written now, right here.
MR. TABLER: ...if I understand the bill as proposed on page three,
the language for the reasonable rate of return language would be
eliminated and you would impose that the commissioner may not grant
a reduction on more than 75 percent on a lease, a lease that's
prior to 1979. With an existing 12.5 percent royalty a 75 percent
reduction would bring you down to 3.125 percent royalty, which
under current, as we view this, we can go down to a zero royalty,
and in some cases it may be warranted.
Number 070
CHAIRMAN ROKEBERG: In other words, Section 1 and its other
attributes creates an artificial floor there that would be
meaningful to your economic interests.
Number 072
MR. TABLER: That's correct. That's correct, in some cases.
That's right.
Number 074
CHAIRMAN ROKEBERG: Just for your information, the chair is taking
due note of that, and we will intend to do something about it in
the future. Representative Finkelstein.
Number 078
REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. The,
appreciate your testimony and it all made sense. The only thing
that's confusing gets be the bottom line, which sounds like your
position is that you want the commissioner to have discretion to go
down from your existing or starting royalty rate, but you don't
want them if the various other conditions change, or the market
factors go up, you don't want them to have discretion to go up.
That is basically, from your point of view, only one direction.
Number 090
MR. TABLER: Partially correct and partially not. Let me, it may
not have been clear in my testimony. What the intent of that was
is that we've created three mechanisms in which you can apply for
a royalty reduction. One is a, a delineated field not previously
produced, producing fields, or existing fields, and then those
which are shut in. What I'm advocating is that there may be
applications for a sliding scale or whatever mechanism of royalty
that would apply to a delineated not yet previously produced. I
think it's unrealistic to think that this great windfall and these
exhausted 30-some plus year fields are going to yield the types of
magnitude, the additional production that's going to warrant a
royalty increase; therefore, the uncertainty on our part as a
producer in the Cook Inlet is that right now we currently would
have our, the uncertainty is that, as I read the bill, there is
unilateral authority for the commissioner to raise it above and
beyond 12.5, which is what we originally agreed to; therefore, you
may not wish to even apply for a royalty reduction if you don't
know the uncertainty that he may increase it. A new
administration, a new commissioner, new interpretation of the
regulations and rules.
Number 116
REPRESENTATIVE FINKELSTEIN: Mr. Chair.
CHAIRMAN ROKEBERG: Mr. Finkelstein.
REPRESENTATIVE FINKELSTEIN: Just to explain my question a little.
The, you're saying you wouldn't want to take the risk, but of
course, the state's got to take a risk too in lowering the rate
because the price of oil may go up again. And I agree with you, it
may be in some of the fields you're talking about, it may be
unlikely that that's going to go up enough to allow the
commissioner to justify increasing the, the royalty significantly.
But they're, who knows what the future is going to hold. I mean,
I'm sure nobody could find a case where the price of oil or other
factors would go up enough that you could justify a significant
increase in the royalty, and since you had already gained the
benefit of the drop in royalty, it would just seem to be fair play.
Number 130
MR. TABLER: Yeah, I, I am suggesting that there's a difference
between you need, we need to recognize the difference between these
exhausted fields, and you know, new technology, horizontal
drilling, maybe some new technique may make you the ability to
recoup more, more of that oil that we couldn't of, and I, I
recognize that, but he would then have the ability to raise the
royalty back up to the original 12.5 percent is what we're saying
for those fields. For the delineated not yet previously produced
fields, I would think that it would be a very easy matter that if
an applicant came in and applied for royalty reduction, at that
point in time you would negotiate on what basis you would have an
increase in royalty in the future. If price, if you want to use
production, any number of factors that you come up with, but that
way the applicant knows and he can plan, you don't commit manpower
and capital investment to the corporate planning. You know, we're
having to keep, these properties in Alaska are having to compete
globally, and it's, it's, if you don't know, we're trying to
eliminate some of the uncertainties, is what I'm suggesting. And
that the negotiation take place when, at the time you've asked for
the royalty reduction.
REPRESENTATIVE FINKELSTEIN: Thank you.
CHAIRMAN ROKEBERG: Representative Williams.
Number 155
REPRESENTATIVE BILL WILLIAMS: Yes, this is very new to me and I
see the commissioner back there and his counterpart, and I was
wondering, Mr. Chairman, if we could get the commissioner to
comment on, on these conclusions and, and...
Number 166
CHAIRMAN ROKEBERG: Yes, sir, it's our intention to get him up
here....
Number 167
REPRESENTATIVE WILLIAMS: Also, if you could explain a little bit
about the peer review concept of, a little further.
Number 170
MR. TABLER: Yes, there was quite a bit of discussion I've heard
over last Thursday and last Tuesday's testimony regarding the, the
review process and the oversight process, and what I'm suggesting
is what we do internally at Unocal, is we, no project gets ordered
or moved on without a peer review, a peer review of a, you know
what I mean by peer review would be of sister agency. It could be
a royalty board. It could be AOGCC. It could be whatever is
determined to be not having oversight or approval or denial, but
just confirmation; therefore, confirming that you haven't given
away the farm. That type of process, a peer review -- not an
oversight review, if you will.
Number 185
CHAIRMAN ROKEBERG: I, I'm really concerned right now, and we're
right at the verge of starting drafting a CS here and one of the
concerns I have right now, I appreciate your input from this, is
the point you make about the monumental difference between mature
fields and the new fields. Before, you were not here,
unfortunately Representative Green did give his presentation on
209. He also showed the audience and committee two drafts showing
the downside; we're used to seeing the upside, but also, this as
they apply to older fields. Part of his testimony is that he was,
was, wants to require two years of prior investment and production
history from an existing field in the application. Is that, have
you got a chance to look at that Bill, and how do you feel about
that, that particular....
Number 203
MR. TABLER: We, we have looked at the bill, and, and our feelings
are that, that we like the ability, the flexibility that's granted
the commissioner under the existing 207 as proposed to be able to
evaluate and let companies go in with their data and make an
independent analysis as to, on an individual field by field basis
rather than predetermining a requirement at this point because
there are unique fields. There are unique circumstances in
individual fields; not all alike.
Number 213
CHAIRMAN ROKEBERG: Well, I think we were aware of that and let....
My concern right now is we're trying to a 'one size fits all' bill
here, new and old, and I'm not sure that there are not certain
circumstances or criteria and then we may want to have statutorily
memorialized here that differentiates some of that, I mean, that's
what I'm kind of driving at. And do you see any particular, for
example, you were, you've testified your concerns about the
reopeners or the commissioner's ability to increase royalties under
this proposed legislation and it's clear that you need, the state
needs that protection because of price increases or other, you
know, fortuitous circumstances like greater reserves being
discovered, so, but clearly that doesn't come into play necessarily
in an older mature field, so, would you prefer to see another bill,
or a section of the bill with certain criteria in a related
specifics in (indisc.) fields, it may differentiate that?
Number 232
MR. TABLER: I, I think that there's enough flexibility that can be
drawn from, at least from the language that I would propose in here
to apply to, in one bill. Do we have time to, to have another bill
make it through, and the review and exhaustive process that's gone
through already. I think that my only concern is that for shut in
wells and for the existing, delineated producing fields today, the
older marginal fields, that there's a cap put on that if you get a
reduction you can't have an increase beyond what was originally
under the lease term, which is the 12.5 percent, and predominately
in our fields. We just don't think its realistic to think that
you're going to have this huge upside.
Number 246
CHAIRMAN ROKEBERG: Well, we put a provision in that said that
fields that are 35 years or older, the commissioner's ability to...
MR. TABLER: No, I would suggest...
CHAIRMAN ROKEBERG: ...he couldn't exceed their bargained for
existing royalty or something, I mean, what's....
Number 251
MR. TABLER: ...well, what I would suggest then is that if we
couldn't have a cap on it back up to the original, that at the time
of reduction, as I mentioned for a delineated not previously
produced, apply the same criteria that you negotiate under what
circumstances you're going to increase it in the future. Is that,
am I making sense?
Number 256
CHAIRMAN ROKEBERG: Probably, but I'm not quite tracking with you.
Number 259
MR. TABLER: Well, we come in. We make an application for a
reduction in royalty. We're granted a royalty relief. We then
have, because of technology or something else, determined that
whoa, you know, there's really some upside here. At the time, at
the time you ask for royalty relief you then sit down and determine
what the criteria is going to be, a very strict criteria for a
royalty increase in the future. That, that's what I am suggesting
is that that process take place right then and there, not five
years down the road and then you get a letter in the mail and it's
determined that we're going to have an increase in royalty because
we've already committed the manpower and the capital, and the
people, and invested in that. The only way a lot of these fields
are, are being produced today, the more green or the more dollars
you put in the ground the more blacker oil that comes out, and
you're going to limit your investments if there's uncertainty as to
what the margins, there are very narrow margins today as they are.
Number 270
CHAIRMAN ROKEBERG: All right. In light of the time right now, I'd
like to, if we could get the Commissioner and Mr. Boyd to come up
right now and if we could -- oh, we're going to hold over here.
We're going to go on until they throw us out of here. And if we
have any more, oh, I'm sorry.
(?) I'll wait.
CHAIRMAN ROKEBERG: Okay. I apologize. I know you have some
information you want to bring forward here, and then you have to
leave. I thank you for your patience, sir, and if some there's
further information to give to the committee we'd be happy to hear
that, and it's the chairman's intent right now to go past noon if,
if we can because I want to make sure we get this testimony. I
appreciate if anybody has to leave or has other appointments.
(?) You will be sitting here by yourself.
CHAIRMAN ROKEBERG: Well, I might be. I'll be starving to death,
but my body can take it. Mr. Shively.
Number 290
JOHN SHIVELY, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES: Mr.
Chairman, my name is John Shively. I am Commissioner of the
Department of Natural Resources and I have with me Ken Boyd, our
Acting Director of the Division of Oil and Gas. I'd like to
clarify something because I think the testimony from Unocal was a
little, there was some confusion. The legislation, as it is
written, says that we may condition a reduction in royalty with an
increase or other conditions. To me, that, that has always meant
that it is just what Unocal has asked for. They know up front what
the deal is. There is no unilateral right in this legislation for
me to come along, or some successor of mine, and say ten years from
now, we want the royalty to go to 20 percent. That's not the way
the legislation is written. It's not the intent. And, and it is,
and I, I think could easily be clarified if, if people are
uncomfortable with it with legislative intent language. But, but,
it, it, I can't, there would be no reason to even have this
legislation if the commissioner could unilaterally raise the
royalty rate. I mean, nobody would take that kind of deal and we
know that. And so it's always been our intent that when the
applicant comes in we would negotiate when the royalty went down
and when it went up, and I would submit, Mr. Chairman, that though
things may be slightly different for marginal fields, we still
don't know what will happen. What happened in the '70s with OPEC
was a major, relatively quick increase that, that lasted over a
long period of time, and if you went into a royalty reduction right
before an event like that and the prices changed significantly and
we had given the, the industry a benefit in the royalty, then I
think that we have the right to get a benefit for us on the other
side, and we would be opposed to capping the royalty at the old
level. This is part of a negotiated deal, and if we can't
negotiate a deal that is acceptable to the company, of course,
there won't be a royalty reduction and it won't go forward, but I,
I don't think company have any risk here at all. That's my
opinion. But they will know the deal up front.
Number 326
CHAIRMAN ROKEBERG: Well, it's line 23 of page three where it says,
"...including increasing or otherwise modifying the state's royalty
share...", I think that's what he's concerned about, but I
appreciate what he just said. I agree with you that we have to
have this ability to go back in a form of reopener or whatever
mechanism we have, but on the other hand, there's a concern he has
and I appreciate that. That's why I was trying to see if there is
a way we can make a distinction between new and oil fields, if that
was appropriate.
Number 335
COMMISSIONER SHIVELY: I don't think it's broke. I think it says,
the legislation says the commissioner may condition a royalty
reduction granted under this subsection in a way necessary to
protect the state's best interest, including increasing or
otherwise modifying. That's conditioning it. That means you gotta
do it up front. A condition on the reduction is part of the
reduction. It is part of the deal.
Number 340
CHAIRMAN ROKEBERG: For a mature field arrangement...
Number 341
COMMISSIONER SHIVELY: And we, I think there has been some
discussion of changing "may" to "shall" because people wanted to
make sure that we did, we did take these things into account. Even
if we determine as we might that there wasn't a reason to increase,
although under certain conditions, certainly price increases, I
can't imagine that we would not have a way to increase.
CHAIRMAN ROKEBERG: Representative Davis.
Number 348
REPRESENTATIVE G. DAVIS: Thank you, Mr. Chairman. If,
Commissioner, yesterday, I think it was indicated that you hadn't
been approved of that and so I might ask you know what you, what
you think of that change from "may" to "shall."
COMMISSIONER SHIVELY: That's fine.
CHAIRMAN ROKEBERG: Representative Finkelstein.
Number 352
REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. The, in the
interpretation of this you still see, this is a question, are there
still two ways that this could be done. One is to actually put
into the production the exact conditions that are going to occur,
a sliding scale or something that says the royalty goes up so much
if the price goes up so much, or couldn't you also have just a
reopener provision that is, you have the right to increase if
sudden thresholds are made without actually saying (indisc.).
Number 362
COMMISSIONER SHIVELY: Yeah, you, certainly. I mean, you could,
you could have as part of the grant of reduction the fact that
there would be a reopener at certain, under certain conditions if
you couldn't agree as a minimum the royalty rate would go back to
what it originally was. And, you know, you try to agree on
something else. And, you know, trying to predict, particularly for
the marginal fields, you know, ten, fifteen, twenty years in the
future may be difficult for the shut in or abandoned fields that
you'd probably have a little better, better prediction ability,
although, as Mr. Fineberg pointed out, due to technology and other
things fields have tended to last, fortunately for all of us
including the industry, longer than people originally anticipated.
Number 374
CHAIRMAN ROKEBERG: Well, do you see any way that, other than
maximum flexibility that you could overcome Mr. Tabler's concern
about this?
Number 375
COMMISSIONER SHIVELY: I intend to talk to Mr. Tabler. I, I
believe we have overcome his concerns. I mean, I believe the
legislation is not written the way he thinks it is. It was never
our intent for us to have a unilateral right to call up anybody one
day and say your royalty rate is hereby raised. That it has to be
part of the agreement, that the only way a comm., a future
commissioner could raise the rate is if it was part of the, the
whole agreement that would come about there was all of the royalty
reduction, and they would know the conditions under which the
royalty would be raised when they started, which is what he asked
for as I understand. He was not necessarily opposed to the rate
going up, but he didn't want, he didn't want it to be a surprise
and he wanted to know when and why it would happen, and I think
that's fair and I think if it's not clear in the legislation that
we can fix that with legislative intent language, but it is, that's
the way I read the legislation.
Number 390
CHAIRMAN ROKEBERG: Just in order to save some time right now, the
references as regard to hiring a consultant and so forth, that
we've heard from Mr. Johnston and also confirmed by Mr. Tabler this
morning, it's the chairman's intent to incorporate that into our
CS, and I'd like to, (indisc.).
Number 396
COMMISSIONER SHIVELY: Mr. Chairman, the suggestion of having the
department choose three consultants and having the industry pick
one of ours and then pay them and have them, have them carry out
the work, we would also, of course, define the scope of work. And
I think that it's very important that we define not only who the
three are but what the scope of work we expect, and that may not be
as cheap as the industry would like it, but we have to define the
scope of work. We do that, we think that gets at this problem of
them having a consulting firm that's totally unacceptable to them
and we, we would accept such an amendment.
Number 406
CHAIRMAN ROKEBERG: I understand, and we'd appreciate some help in
the language and (indisc.). Representative Finkelstein.
Number 407
REPRESENTATIVE FINKELSTEIN: Mr. Chairman. Well, on that point
the, I still see that as problematic. These, the contractor's
going to work for the industry and their fee is testimony, would
be, the impression, I thought was that as far as the department was
willing to go is to give them one veto over who the department is
using. These folks, there's a, any time you got someone paying
somebody else, there is a relationship there that (indisc. -
coughing) to the department.
Number 415
COMMISSIONER SHIVELY: Mr. Chairman, Representative Finkelstein.
As a result of the discussion, we've gone back and looked at a
couple of things. One, a decision that was made out in Good News
Bay on a platinum mine, and also looking at the system that the
federal government uses for EISs and that's, this is precisely the
system they use. So, so there's, I think, a good precedent for it
and although it is different than earlier testimony, I agree with
that. We think that it meets the high standards that need to be
met in order for the state's interest to be protected.
Number 422
REPRESENTATIVE FINKELSTEIN: Mr. Chairman, I, we don't, does it
concern you at all that this person who is helping the state make
a best interest finding is going to be a contractor to the oil
company? Paid directly by the oil companies and not paid by the
state?
Number 426
COMMISSIONER SHIVELY: Mr. Chairman and Finkelstein. As I said, if
we define the scope, as long as we define the scope of work and
these are professional firms that we have picked, the answer to
that question is no. If, if they were any firms coming from
anywhere and we could not define the scope of work I would have
grave concerns.
Number 430
CHAIRMAN ROKEBERG: In the issue of time, we can, we'd like to move
on, we can maybe revisit this.
REPRESENTATIVE FINKELSTEIN: Yeah, if I could just, through the
record, I'm concerned though.
CHAIRMAN ROKEBERG: Okay. Thank you, Representative Finkelstein.
The ...
REPRESENTATIVE WILLIAMS: Mr. Chairman.
CHAIRMAN ROKEBERG: Oh, excuse me. Representative Williams, Sir.
Number 434
REPRESENTATIVE WILLIAMS: Could I ask you what your thoughts are on
the peer review concept?
Number 435
COMMISSIONER SHIVELY: Mr. Chairman, Representative Williams. We
are willing to work with the committee and the committee substitute
to find some kind of peer review. We think that perhaps the
Royalty Board is appropriate. I think we've expressed some
interest in that before. There is, the ARCO testimony I think has
suggested that maybe through the Attorney General's office, which
could be done either by one of their staff, or by them appointing
a hearing officer. We also though would suggest that in doing
that, that the peer review, whatever it is, be a review of the
process to make sure that the commissioner followed the process
that was spelled out here, that they found that there (indisc.)
pool that he found that there was economic reason for the reduction
of royalty and that he found that it was in the best interest of
the state. If we were second guessing the economics of the
decision, then it's gonna be a fairly costly provision, and we
would also suggest that there be a time limit on any review.
CHAIRMAN ROKEBERG: Representative Williams.
Number 451
REPRESENTATIVE WILLIAMS: Yes, I guess my interpretation of peer
review was somebody that's in the business of, the oil companies,
that know what, what specifically is happening in that area. I'm
not an expert in that area and I would like to be able to get
someone that is an expert, that is totally outside the State of
Alaska. We may not be in the same position as we are today with
having you as a commissioner. We may be in a position where the
state doesn't want to open up any more fields and we, as the
legislature, get this report back from, from the DNR stating that
we're not going to accept any more of these projects. And we're
concerned, so what do we do? How do we address that? It's not
appealable according to the way that bill is written, and so we're
sitting here on our, we'd be sitting here on our hands, not being
able to do anything about it. I would like to be able to go to a
peer review committee, however it may be. I think we should do it
like the timber industry. You get scientific people on both sides
of it that know and understand the issues, and they are the peer
review. We, we listen to that.
Number 469
COMMISSIONER SHIVELY: Well, Mr. Chairman, Representative Williams.
Of course, I mean, if you want a whole second decision-making
process then the state is going to have to either be willing to pay
for that, or the industry is going to have to be willing to pay for
it because there is not the capacity within government as this
point to do a total in depth economic review. There is the
capacity in government in what I would consider peer review, and I
think either the ARCO or the Unocal person talked about their
internal peer review, so someone else with similar knowledge
looked, double checked their decisions. I think there is capacity
to make sure that the commissioner carried out the intent of the
law in terms of the process as it was envisioned by the
legislature. I think we can write that, that into the legislation
and we're, Mr. Chairman, we're certainly willing to work with you.
Number 481
CHAIRMAN ROKEBERG: To follow up on that point, Mr. Williams,
Representative Williams, I, I know in conversations the last few
days there's been some criticism as brought forth by ARCO and Mike
had discussions with the director regarding using the AOACC,
AOAGC...
(?) (Indisc.).
CHAIRMAN ROKEBERG: Right, that's the one. ...as, as the peer
review function and then you just mentioned this morning the
Royalty Board. I, I'd like to get your comments about what your
position is on the Conservation Commission vis-a-vis the Royalty
Board vis-a-vis another third party. I think the new third board
you just mentioned would be a burden economically and we'd be
setting up more bureaucracy and all that kind of stuff. I don't
think I personally want to pursue that, so if you could comment on
that right now I'd appreciate it.
Number 494
COMMISSIONER SHIVELY: Yeah. We think that there is some potential
conflicts with the AOGCC because of their responsibilities, also I
don't think they really have the capacity to do this particular,
but we've done some legal analysis that I think we're willing to
share with the committee about why we think that there's, there's
a slight conflict because of, what they do is they're interested
in, in, one, making sure that people aren't stealing each other's
oil, and then two, that they get the maximum amount of oil out of
the ground. Their interest would be the driving royalties as low
as possible because they are interested in getting the maximum oil
out of the ground. Driving the royalty to zero despite Unocal's
testimony somewhat to the contrary, isn't always in the best
interest of the state. And that's why we think there's a conflict
with the AOGCC.
COMMISSIONER ROKEBERG: Representative Finkelstein.
Number 507
REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. I just have
a very philosophical question which hasn't been, I don't recall the
answer to. It's one of the things we're doing with this bill is
we're covering these two subjects, you know, both the declining
fields and new marginal fields, and they, I get very mixed up
sometimes thinking of the different treatment, but just thinking of
the new marginal fields, something that hasn't been developed yet.
Someone's coming in for a royalty reduction request. Why wouldn't
it be in the state's best interest just to reopen it for bidding,
put it out to whoever wants it and take their royalty reduction
request as a bid? That's what they want it as, and if they don't
want any better level, they get it.
Number 517
COMMISSIONER SHIVELY: Well, I think there are a couple of reasons
for that. Some, if, someone might bid higher and the, when you
come in for a royalty reduction request, as you recall, we have to
have a delineated field. To have a delineated field there will
have to be seismic work. There has to be wells drilled, at least
one well. You could probably, there's some thought that you might
be out of one, but probably in several wells, millions and millions
of dollars invested, and that company probably will not be willing
to share with someone who came in and over bid them in a rebid for
the leases. So, you're back almost to ground zero and you've asked
this company to spend all this money. Now maybe, you know, they
turn around and sell that information to the new high bidder and
then whether that person comes in and asks for a royalty reduction
I don't know. But, but because of the three-prong test we have we
don't think, you know, not every oil field is going to be able to
come in and get a reduction. I mean, there are some pretty high
standards here. And we're asking the industry, the oil companies
to have done a fair amount of work before they can even ask for
such a reduction. So, that's why I think it would not be in the
state's best interest to just rebid the leases.
Number 534
REPRESENTATIVE FINKELSTEIN: Mr. Chairman, this, the, the, didn't
they make all those investments though with the assumption that
they were going to play the existing royalty? I mean, it's
basically a new game now. Something's fallen apart, either their
finances or the market, or some new condition that exists.
Number 536
COMMISSIONER SHIVELY: Mr. Chairman, Representative Finkelstein.
Well, several things, but one of the things that often falls apart,
and it's the least predictable for anybody when they're bidding on
a lease, is the volume of oil that they're going to find. And, of
course, sometimes it's zero. And what, and a lot of, I think what
is going to drive these royalty reduction decisions is the volume
piece of that pie and no, there is really no way for the industry
to know when they bid a lease is what volume of oil is there.
Number 542
CHAIRMAN ROKEBERG: Thank you, Commissioner. Is there anything
else that you'd like to bring forward at this time, before we open
it to more questions, or?
COMMISSIONER SHIVELY: I don't have anything.
CHAIRMAN ROKEBERG: Representative Finkelstein?
Number 546
REPRESENTATIVE FINKELSTEIN: Just to take that last question and
make it even more general, is there any way you can see of
reinserting any element of competitive bidding into this system?
Because, you know, I, it isn't such a abstract concept. Our whole
system is built on it. Here we've got a provision that's, you
know, rarely or never been used, and it just seems to me as we move
away from it if there is any way to reinsert even a portion of it
to get some sort of market test, it's going to help. You're going
to be making a pretty tough decision, right? I mean, every step
along the way you're not really going to know. You're going to
have some proprietary information from industry that will be very
little check on. You won't be able to compare it to the others
necessarily, and I don't know how it could be done, but it just
seems like it there must be some way to get some market element
back into it.
Number 556
COMMISSIONER SHIVELY: Mr. Chairman, Representative Finkelstein.
I mean, I think one of the ways we look at the market is there is
capacity within the department to look at what's going on in other
fields, particularly other fields in the state because we have all
that information. So, even when we use an independent contractor,
once they come back to us with their analysis of the information,
we, we, we're not just going to stop there. We will have to go,
and I think our division of oil and gas has some exceptional people
that look at that and say, well, you know, is field B really a lot
like field A, and if so, you know, really, field A is doing fine.
Why do we need to give a reduction in field B? So, so we do have
the capacity to look at that part of the market.
Number 566
REPRESENTATIVE FINKELSTEIN: Mr. Chairman, just, I just misstated
a little bit. I so much mean market analysis as I meant market
competition, that side of the market. That, that is what our
system runs on now and I hate to lose it.
COMMISSIONER SHIVELY: Well....
REPRESENTATIVE FINKELSTEIN: (Indisc.) we might be losing it here.
Number 568
COMMISSIONER SHIVELY: Well, Mr. Boyd thinks I'm not doing a very
good job, so he will try to explain it.
Number 570
MR. BOYD: I think, Mr. Chairman, Representative Finkelstein might
be talking passage a little bit. Commissioner Shively has talked
about the requirement to delineate before you can apply. But there
are preliminary steps. Let's say there's a lot of leases been
leased, and we have terms. The leases have a set term. On the
North Slope they're quite often ten years. So, the company really
doesn't have to do anything for ten years. But, let's say it
shoots in seismic and it, and it determines that boy, this is just
a dog. That's the market. I mean, that's, that's where your
concept comes in, I think. Whereas in other fields they shoot some
seismic, some hope. They drill some wells. They begin to
delineate. They go for the process. The market itself, you know,
the price of oil is X, this structure looks too small, they give it
back to the state, and we release it to the company that may wish
to work it. Each company will have a different set of economics
that may drive it to a particular place. I think that is what you
were getting at.
Number 581
REPRESENTATIVE FINKELSTEIN: Well, that, thank you, Mr. Chairman.
That was, that is very helpful, and the, and that, absolutely, I
think that works when we're going to sell some new leases, right?
Because all these provisions are going to be part of law. People
are going to realize they're going to have a chance for reduction
later, so they might bid more. There might be more bonus bids.
There might be higher royalties because they know someday down the
line that if everything goes bad, they are going to have a chance
to try to, you know, still get a shot at it at some lower level.
So, I think that's fine, but how about applying it to existing
leases? I mean, the ones that are already in place. If someone's
already made all those initial investments, they didn't have that
assumption in mind. There wasn't any competition based on these
new procedures. They got it under the understanding that this was
their, this was the royalty they're going to operate under. And
unless, you know, they beat (indisc.).
COMMISSIONER SHIVELY: Mr. Chairman, let me take a crack at that
and then Mr. Boyd can correct me. I think that actually having
this provision probably, at least in the bonus part of the bid,
will drive the market up a little bit. And so that we have a,
because it does change it, and so I think there's some potential
advantages in the new lease sales because people may feel that they
have a better opportunity to develop. We didn't have that as part
of, so you could almost argue that not having this has had somewhat
of a negative effect on the market. That's the way that I would
look at it.
Number 599
CHAIRMAN ROKEBERG: Very good. Thank you. The, a couple, in order
to move along here quickly here and to get some response so we can
help to do some drafting here, just for the committee members and
anybody that has to leave, we are scheduled to have a meeting at
five o'clock tomorrow here, and we will, hopefully, if you can make
it. If you can't I understand. But, I would tend to take it there
would be any more industry testimony to try to take it at that
time, and also, maybe we can discuss any progress we will or will
not have made on the CS draft. I would like to have some kind of
just a draft to you, just a working draft; very rough, just to give
you an idea of what, what we're, which way we're headed that, and
then we'll have to figure out our scheduling for next week. I'm
going to move this bill next week, you know. But it may require us
to meet maybe Monday and Tuesday to do it, I don't know. I mean,
you know they do that. So, that's a decision we'll have to make
today, but just to let you know. Quickly, if you were to go to the
bill, on page three, line five, "The commissioner shall require the
lessee entrusting the reduction of royalty..." would it be
appropriate to have lessee and, and/or lessors? I mean, there are,
lessees, I mean, the plurality of that if you have more than two
participating companies and a PA or a unit? Should that be plural
in there or something like that?
COMMISSIONER SHIVELY: Yeah, I see it.
Number 620
MR. BOYD: Mr. Chairman, I don't see that as a substantive change.
Maybe just a paren S to recognize the singular with plural.
CHAIRMAN ROKEBERG: (Indisc. - both talking) that would be
appropriate just 'cause I....
UNKNOWN: Let's leave it a blank print out.
MR. BOYD: I withdraw my....
UNKNOWN: You don't have to. They're just words.
Number 624
CHAIRMAN ROKEBERG: And then we've had some discussion about the
definition of field. You had some ideas and you're going to
provide those to the committee.
Number 625
MR. BOYD: Mr. Chairman, I believe I read into the record two days
ago.
Number 626
CHAIRMAN ROKEBERG: Okay, good. Okay. Going on, and the, we've
had some, today in particular, I'd like to hear your opinion on
the, the provision of 209, a two-year projected deal. Any
differences we might want to look at in the bill? We're trying to
accommodate the older mature fields versus the new fields. Any
land mines here that we might want to speak to?
Number 632
COMMISSIONER SHIVELY: Mr. Chairman, if I might on that. I mean,
I think Representative Green was right in saying that, as we all
know, there's a difference between new marginal fields and older
abandoned and declining fields. Very few fields are declining or
ready to be abandoned after two years. So, I don't think the two-
year really gets us anywhere. I think for the marginal fields
we're really going to have to make the decision up front based on
the best available information, and then on the marginal, or fields
that have ben abandoned, I mean, it's in the bill, and the two
years doesn't, doesn't really apply to those. I mean, nobody in
this state is going to develop an oil field that they think they
might shut down in two years.
Number 640
CHAIRMAN ROKEBERG: I think right now, in my opinion, by inserting
the two-year requirement, obviates the necessity to go back to the
whole historic record that the commissioner brought up in
testimony. If we, if you went to two years it means that's all you
have to do. You don't have to go back four or five years to...
Number 644
COMMISSIONER SHIVELY: Excuse me, Mr. Chairman. All right. I may
have misunderstood your question. What you're saying is you only
have to look at the last two year's data in order to make a...
CHAIRMAN ROKEBERG: Production data.
COMMISSIONER SHIVELY: Production data on a, on a field that's
about to be abandoned under a shut in. I, we don't have a position
on that right now. I think that probably though, in our mind,
might be a little bit short in terms of a time frame, is my initial
reaction to that. But, I, I understand the problem of asking
people to go back to the beginning. It's one of the reasons, as
I've explained before, that we took out this reasonable rate of
return, is, is to, that's why we felt we had to go back in that one
particular request because the law stated we had to have a
reasonable rate of return on the whole field. By taking that
language out we no longer are required to do that, so we wouldn't
have to require all the information. If you're concerned about us
requiring 30 years of information that might not be available, I
think we're willing to accommodate that. We have not discussed how
to do that.
CHAIRMAN ROKEBERG: Representative Finkelstein.
Number 656
REPRESENTATIVE FINKELSTEIN: Just on this question of, I'm not sure
I understand what the term "production data" means. I'd assume
that there's two things. One is there's, you know, literally
production data, which is how much was actually produced, you know,
and what came out of over what periods versus economic data.
There's costs and various other things that go in here,
calculations, and it seems to me you'd want everything in
production data because the whole case is, where is this thing
going? Right? In a couple of years. But that's a relief that
that one company was after and may have been more in their economic
data. I suspect that they had their production data.
Number 663
COMMISSIONER SHIVELY: Yeah, but, Mr. Chairman, Representative
Finkelstein. I was using production data in the more general
sense, not just...
REPRESENTATIVE FINKELSTEIN: I don't know how it's used.
MR. BOYD: ...number of barrels produced.
Number 644
CHAIRMAN ROKEBERG: Mr. Boyd, it's already in the existing
statutes, or was previously? But to your requirement? What?
Number 665
MR. BOYD: Two-year requirement was for, to be on production.
CHAIRMAN ROKEBERG: Right.
MR. BOYD: It didn't, to my knowledge, it didn't say anything about
how much data you had to produce. You still had to produce the
data that was necessary to make the decision. But you physically
had to be on production for two years.
CHAIRMAN ROKEBERG: Right. Okay. Is that...
MR. BOYD: ...and actually producing oil.
Number 669
CHAIRMAN ROKEBERG: ...is that in the existing statute or regs?
Number 670
MR. BOYD: That was repealed in 1990.
Number 671
CHAIRMAN ROKEBERG: That was repealed in 1990. Was there, do you
recall why?
Number 672
MR. BOYD: It was repealed for Conoco because Conoco had not yet
been in production for two years, and they were trying to give some
relief to Conoco, and so they repealed that statute.
Number 674
CHAIRMAN ROKEBERG: So, if it was reinserted for the purposes we're
driving at it would, do you see anything, any problems with doing
that, or?
Number 675
COMMISSIONER SHIVELY: Yes, Mr. Chairman. I see a big problem with
that. We couldn't deal with marginal fields. Because you're
asking the marginal field to be in production for two years before
we can make the decision, and you know, I think what we've
discussed here primarily is a system to allow marginal fields to
come in and say, look, we can't produce unless we get this, this
reduction.
Number 679
CHAIRMAN ROKEBERG: Okay, then how do we deal with the problem with
historic data then? We need to stipulate (indisc.).
Number 682
COMMISSIONER SHIVELY: I think we, I think we dealt with it. I, I
think we now have the, we no longer are required, if you accept
our, our language, to look at the total return on the field, which
is what drove that decision to ask for all the historic data. We
don't think...
Number 683
CHAIRMAN ROKEBERG: Well, it's in the regulations right now.
(Indisc. - both talking). It's in 11 AAC, etcetera, etcetera.
What do you do about that?
Number 685
MR. BOYD: Yeah, but the law drives regulation, Mr. Chairman, and
we have to use the data that has a clear and convincing showing.
The reduction meets the requirements of this subsection is the best
interests of the state. We have the finding process.
Number 686
CHAIRMAN ROKEBERG: But we have a historic record here where the
prior director has added additional data based on the existing
statute, existing regulations and added in the applications process
additional hurdles to the company.
Number 689
REPRESENTATIVE FINKELSTEIN: It would all be gone though.
Number 690
CHAIRMAN ROKEBERG: Will they be gone? Is that the case?
Number 693
MR. BOYD: Just by law. Once the new law passes, any nonconforming
regulations (indisc.).
CHAIRMAN ROKEBERG: Well, I'm sure glad to hear that. Thank you.
But it's still this, by doing, by getting rid of it then, this
historic data problem would go away? Is that what you're saying?
I guess we don't need this.
MR. BOYD: Mr. Chairman, to the extent that the data was not
necessary for the company to make a clear and convincing showing,
then it would be senseless to ask for data just for the sake of
building a pile of paper in our office. It was never anybody's
intent, and a piece of paper that was in the old Marathon or Texaco
application actually cites two regulations. And the other piece of
the regulation is a DNR requirement, just for the way paper is
submitted. And the other pieces is the conforming regulation to
the old law. Again, I believe, I believe the commissioner believes
that these, these words, "clear and convincing showing" to meet the
requirement of the subsection best interests of the state cures the
silliness, I'll say, of requiring everything if you don't need it
to make a decision.
TAPE 95-13, SIDE B
Number 000
CHAIRMAN ROKEBERG: ... or do we need to stipulate, I mean, or just
disappear by definition?
COMMISSIONER SHIVELY: We'd go, we'd go in and clean that up. I
don't, I think we understand what....
Number 005
CHAIRMAN ROKEBERG: We've talked about this, you know, that
relationship between the statute and the regulations. It was used
in the past as a sword, and that's what I want to avoid.
COMMISSIONER SHIVELY: I understand that.
CHAIRMAN ROKEBERG: And, and the regulations exist right there? I
mean, are we supposed to be quiet on those, or can we clean them
up, or what?
Number 012
COMMISSIONER SHIVELY: Well, the executive branch cleans up
regulations. I commit to you, Mr. Chairman, that I will clean that
up if this law passes. And I believe the law supersedes it anyway,
so I don't think it has to be, but we will do that because it
doesn't make...
Number 016
CHAIRMAN ROKEBERG: You're going to assure us that you'd have that
done in 60 days after?
Number 018
COMMISSIONER SHIVELY: Mr. Chairman, I will not assure you anything
happens in 60 days in government.
CHAIRMAN ROKEBERG: That was just a question.
Number 020
COMMISSIONER SHIVELY: I will do it as expeditiously as possible.
Number 020
CHAIRMAN ROKEBERG: The, in the appealability situation we've
requested that legal opinion, and that's forthcoming. Is that
right? Is that correct? Just make sure we're all on the same page
there.
COMMISSIONER SHIVELY: I'm sorry, Mr. Chairman.
CHAIRMAN ROKEBERG: The appealability thing, adding the applicant
and then you're going to provide us with an opinion, a lawyer's
opinion, on that? And the due process relationships.
COMMISSIONER SHIVELY: Yes.
CHAIRMAN ROKEBERG: That's forthcoming?
Number 036
MR. BOYD: Mr. Chairman, I, you may not have seen it yet, but I
provided it to your staff this morning, an opinion on
nonappealability clause.
CHAIRMAN ROKEBERG: Okay.
MR. BOYD: It is not an AGs opinion. It is an opinion of an
assistant AG. And we can discuss this further, but it is opinion.
I'll cite it here if you haven't had a chance to read it.
Number 040
CHAIRMAN ROKEBERG: Well, I want to make sure it's clear in the
record is all, and we've discussed this, and that's, we don't need
to go into it now.
Number 041
MR. BOYD: I, I'll just read the first (indisc.) perhaps for the
record, Mr. Chairman.
CHAIRMAN ROKEBERG: Okay, go right ahead.
MR. BOYD: It says the nonappealability clause does not give DNR
license to make arbitrary capricious manifesting or unreasonable or
unconstitutional decisions.
Number 050
CHAIRMAN ROKEBERG: Oh, okay.
MR. BOYD: And it goes on from there.
CHAIRMAN ROKEBERG: So, the outside third-party will be able to
bring a cause of action under the due process.
Number 051
MR. BOYD: Mr. Chairman, I believe the way the bill is written now
it, it just, it saves us from minor procedural errors and things
that would be left upon by parties that just did not want to see
this happening at all, but it provides for substantive issues to be
brought before the court.
Number 057
CHAIRMAN ROKEBERG: And we were going to insert the applicant in
the language. Is that where we ended up, or we (indisc.).
COMMISSIONER SHIVELY: No, I don't think we need to do that.
Number 061
CHAIRMAN ROKEBERG: We don't. Is that the plan, we don't do that
then? Is that what you're saying?
Number 065
COMMISSIONER SHIVELY: I think so. I think everyone should be on
equal footing. There is no sense to have them on a different
footing than anyone else. They are the ones that have the most at
stake, and if we have a review clause, I mean, what you, I think
we've agreed to, then actually that section is going to change
anyway.
Number 072
CHAIRMAN ROKEBERG: Okay. Very good. And, have we, (indisc.) that
number. We discussed reinserting, we remove Section 1, reinserting
a floor on new fields and not a floor on old fields? I mean, do
you have an opinion on that? Example 25 (indisc.)?
Number 078
COMMISSIONER SHIVELY: We, we have not had a chance, Mr. Chairman,
to have an opinion on going to zero on old fields. We have agreed
with you on your floor on the, on the, which will apply to
everything.
CHAIRMAN ROKEBERG: (Indisc.) defined an old field and went to zero
on that, would that, would you give us some feedback on that?
Number 083
COMMISSIONER SHIVELY: I will give you some feedback. We do not
have a position at this time.
Number 085
CHAIRMAN ROKEBERG: Okay, any further questions? Well, thank you
very much. We will be meeting at five o'clock tomorrow right here,
take further industry testimony. Hopefully, we'll have a, I'm not
going to promise a draft, but we're going to hopefully try and get
it cleaned up so we have something this weekend.
This committee stands adjourned at 12:24. Thank you very much.
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