Legislature(1995 - 1996)
03/20/1995 05:10 PM 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 20, 1995
5:10 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative Bettye Davis
Representative David Finkelstein
Representative Scott Ogan, Co-Chair
Representative Gary Davis
Representative Bill Williams
Representative Tom Brice
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
WITNESS REGISTER
KEN BOYD, Deputy Director
Division of Oil and Gas
Department of Natural Resources
3601 C Street, Suite 1380
Anchorage, AK 99503-5948
POSITION STATEMENT: Available for questions
PATRICK COUGHLIN, Assistant Attorney
Attorney General's Office
1031 West 4th Avenue, Suite 200
Anchorage, Alaska 99501-1994
POSITION STATEMENT: Available for questions
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
03/16/95 (H) MINUTE(O&G)
03/17/95 (H) O&G AT 05:00 PM CAPITOL 124
03/17/95 (H) MINUTE(O&G)
03/20/95 (H) O&G AT 05:00 PM CAPITOL 106
ACTION NARRATIVE
TAPE 95-15, SIDE A
HB 207 - ADJUSTMENTS TO OIL AND GAS ROYALTIES
Number 0000
CHAIRMAN NORMAN ROKEBERG: Good afternoon. This is a meeting of
the House Special Committee on Oil and Gas. It's called to order
at 5:10 on March 20th, 1995. For the record, committee members
present are Representative Davis, Representative Finkelstein,
Representative Ogan, Representative Davis, Gary Davis,
Representative Bill Williams, Representative Tom Brice and the
Chairman. A quorum is present. On today's calendar is House Bill
107, the royalty reduction and we are on teleconference with
Anchorage. Oh, I said, I meant 207, excuse me. For the purposes
of discussion a committee substitute for House Bill 207 has been
prepared and is included in the member's packets. Representative
Ogan, will you move the committee substitute for House Bill 207?
Number 0072
REPRESENTATIVE SCOTT OGAN: Mr. Chairman, I move adoption of
committee substitute for House Bill number 207.
Number 0100
CHAIRMAN ROKEBERG: Thank you. Are there any objections? Hearing
none, excuse me, sir.
REPRESENTATIVE GARY DAVIS: Just, go ahead.
CHAIRMAN ROKEBERG: Right. Discuss the, committee substitute for
House Bill 207 is now before the committee for discussion. Mr.
Davis. Representative Davis.
REPRESENTATIVE G. DAVIS: Thank you, Mr. Chairman. You don't have
the bill drafters in here, someone to go through the changes and,
you don't have a (indisc.). Are you familiar with that, or....
Number 0130
CHAIRMAN ROKEBERG: Let me, let the chair just make a comment here.
I apologize for just getting this to you just in the last few
minutes literally, and that's because it was just prepared in the
last few minutes. And it's the chair's intention to take, to
discuss this bill today to try to inform everybody on the committee
what's in here so we can, also, if anybody wishes to testify or
comments from anybody, they are certainly welcome to do so, and
particularly look forward to any input that Mr. Boyd might have,
and from there, I would hope that we can take this home tonight and
look it over, and bring, come back tomorrow and discuss it in
greater detail and hopefully, if we're all in concurrence, we can
move the bill. My concerns right now are that we need to get the
process moving and get it into House Resources by this Friday. So,
and that, that's the chair's intent. If I might just briefly run
through this, bear with me. Section one was the original bill
after the, we heard the discussions here regarding the Governor's
bill. It was, I believe that the way the testimony required that
that section be removed, particularly because it gave a, it
introduced a new concept into legislation here as far as the
allocation between the permanent fund and the general fund. So
that's one element. The other, so that's gone, and Section 1 is a
provision that endeavors to conform certain net profit leases and
likens them to royalties for the purposes of this amendment, and I,
I've had some discussions with various members of industry on this
and there was some request for this, so we need to take some
additional testimony and I'm, we'll be looking forward to some
testimony tomorrow on Section 1 of the CS as it relates to net
profits. So, let's reserve any discussions hopefully, until that
time. Section 2 is basically the meat of it. You just, what we're
doing here is allowing for royalty reductions of three different
types of fields. We have an existing, I mean, a new field. And
the field here is defined more broadly as, if you'll see in Section
1, on page two, Section, Subsection (1)(A), we're calling out oil
or gas field, pool or portion of a field or pool. The intention
here is to pick up horizons as they are sufficiently delineated,
and I think we took a submission, quite a bit of testimony on
trying to figure out what a field was, and so forth and the
intention here is that this language will enable the commissioner
and the people making analysis to identify a particular horizon
inside a unit or lease. Then on the second.... Representative
Davis, go ahead, sir.
Number 0375
REPRESENTATIVE G. DAVIS: Yeah, thank you. So, so if this just
further spells it out because that would have been assumed what the
commissioner would do it anyway, is that? That would be my
understanding.
Number 0386
CHAIRMAN ROKEBERG: I think that's correct, right. I think there's
a pretty general, right now, this type of language I think is
generally acceptable to the commissioner and, and the industry.
(Indisc. - coughing) all these things. I could be corrected here
'cause this is, this is a real first draft and there's not a lot of
pride of authorship at this stage, so if anybody's got problems let
me know about it, so.
MR. KEN BOYD, DEPUTY DIRECTOR, DIVISION OF OIL AND GAS, DEPARTMENT
OF NATURAL RESOURCES (Teleconference): Mr. Chairman.
CHAIRMAN ROKEBERG: Mr. Boyd.
Number 0420
MR. BOYD: Mr. Chairman, do you mind if I interrupt like this, or
would you prefer that I wait for questions at the end?
Number 0427
CHAIRMAN ROKEBERG: Well, on this one, why don't you, if you have
a comment go ahead, Ken.
Number 0430
MR. BOYD: I would only comment, Mr. Chairman, on line one, page
two, lines two and three, I think on line three, where it says
"...leases in a participating area formed under a unit agreement
for a single area of oil or gas productivity..." is not really
pertinent because anything that's in a participating area by
definition has to be the unit, and a single area of oil or gas
productivity is defined nowhere to my knowledge in law, or
regulations. So, what I'm saying, I guess, is it may allow
reduction of royalty on individual leases, or leases unitized as
described in C of this section, which pretty much covers everything
you can cover, and the language of the bill I think really adds
nothing.
Number 0480
CHAIRMAN ROKEBERG: You mean the....
Number 0482
MR. BOYD: Well, we're just assuming the area, by nature, is a
subset of the unit, oil participating areas are contained in units,
and it's a single area of oil or gas productivity, just has no,
nothing, I've never seen it that, per unit, before.
Number 0503
CHAIRMAN ROKEBERG: As I recall, that was in the last, the
Governor's bill, that type of language. Yeah, having first to seen
this too, I don't know how it fits together. But you said the
stuff, the language in the middle here, are you, what are you
referring to specifically? Under A, B and C, or what?
Number 0520
MR. BOYD: On line two, beginning with the word, after the word
"individual leases," and the comma.
CHAIRMAN ROKEBERG: Right.
MR. BOYD: It says "...leases in a participating area formed under
a unit (indisc. - coughing) for a single area of oil or gas
productivity..." I think it does not necessarily add anything to
what you're trying to describe.
Number 0540
CHAIRMAN ROKEBERG: Right. You're saying we could delete that
language. Is that what you're suggesting?
Number 0542
MR. BOYD: Right.
Number 0550
CHAIRMAN ROKEBERG: Okay, yeah. Fine. Okay then, but going on
here, the, then the Subsection (1)(A), little "i", we talked about
delineation before and we put this language in here and I want to
make sure that both the industry and the commissioner is satisfied
with it. If not, we can change it here. We put sufficiently
delineated to the satisfaction of the commissioner. I think we
heard testimony that just the word delineated would be adequate, so
maybe, let's go on and we can talk about that later. So, that's an
area of, you know, that we need to focus on it. The little "i" is
the not previously produced oil and gas field. The little "3"
little "i" is not otherwise, that's the, then makes it not
economically feasible and that's all, these are all related to new
production. Now in sub B there, that's to prolong the life of the
field, and sub C is a shut in. The, that's a shut in field, so.
That sets up the, what we're talking about. And Subsection 2...
REPRESENTATIVE SCOTT OGAN: Mr. Chairman.
CHAIRMAN ROKEBERG: Representative Ogan.
Number 0632
REPRESENTATIVE OGAN: I'm still on B of Subsection 1.
CHAIRMAN ROKEBERG: Okay.
REPRESENTATIVE OGAN: If you could slow down just a little bit.
Number 0650
CHAIRMAN ROKEBERG: That's the prolonging of the...
REPRESENTATIVE OGAN: Right.
CHAIRMAN ROKEBERG: C is the shut in.
REPRESENTATIVE OGAN: Okay.
CHAIRMAN ROKEBERG: It's sub, sub 2, this is where we pick up the
language of a clear and convincing showing for the reduction and in
the best interests of the state, which was in the Governor's bill.
Then it moves on in three and the word "shall" is here and then
I've got some concerns about this myself. If the royalty reduction
agreement is approved in the royalty reduction agreement condition
both the reduction and the best interests, the state's best
interest. Then it says the commissioner, on line 30, page two,
"...the commissioner shall include provisions to increase or
otherwise modify the state's royalty share...", which was in the
former bill, but then we added "by a sliding scale royalty or other
mechanisms upon the occurrence of a change in the price of oil and
gas" and then we've added "crude reserves, oil productivity, or
capital investment in the oil or gas field pool or portion
thereof." I think I need to reexamine, this portion, this is a
really critical portion and I think earlier today I had a brief
conversation with Mr. Boyd where we got, we should clarify this.
One of my concerns when I presented it to the drafter, these crude
reserves, oil productivity and capital investment, I, what I was
suggesting is that the commissioner could use a combination of one
or many of these particular other factors. These are the other
factors in the former bill. And I'm not sure how this reads right
now. As I read it it almost requires them to do it, but there are
disjunctive words "or" there. So, that may satisfy that. Or
capital, I'm really uncertain of that. Mr. Boyd, we can come back
to that one, if you will.
Number 0788
MR. BOYD: Mr. Chairman, just a one-liner (indisc.).
CHAIRMAN ROKEBERG: Okay.
MR. BOYD: I just ask that the drafting to be careful about, you
don't want to again limit the commissioner (indisc.). You also
don't want to limit these applicants that have to prove things, or
short change these things that may not change, which still may
warrant a royalty reduction. You may have created a number of
things that have to occur simultaneously, or in conjunction.
Number 0814
CHAIRMAN ROKEBERG: Right. I, I agree with you. That's not the
intention. That's not what I meant to have drafted, frankly. What
I wanted....
Number 0819
MR. BOYD: Well, I believe, in a reading of that you would have
that.
Number 0821
CHAIRMAN ROKEBERG: Well, I absolutely agree with you. That was my
first reading myself, and that was not what I requested. 'Cause
all I, what I was trying to indicate there is that these things
need to be considered, but the commissioner needs to have the
flexibility to consider them. And, it particularly comes into play
here like, for example, the capital investments, that would be
perhaps the only element that the older field would have on its
sliding scale. When you have the declining type of a graph where
you have investment capital on one side and royalty, and the
royalty on one side and the investment capital, there is a
relationship. So, I, yeah, that was not my intent, so the drafter
missed, missed the mark on that. And we need to take a serious
look at that. Then going on, we're on Sub 4 there, line five of
page three, this is a reintroduction of what we discussed in the
committee about setting a floor. Previously, in the old Section 1,
there was some what I deemed somewhat artificial floors. This is
an artificial floor, but it's one that specifically relates at this
point to new fields. In other words, it can't ex... the reduction
can't exceed 75 percent. That means there is a 25 percent floor
for new fields, and the way that this is drafted, this would
provide maximum flexibility to the commissioner, allowing him to go
below 75 percent on old fields. And we've had various testimony on
that, and that, that is an issue that's that's, I would venture to
say, a little controversial right now. But just so there's a fair
understanding of that, that language is intended to put a floor on
new fields and no floor on existing or shut in fields. Okay,
moving on, line item five, five all the way down, almost to the,
let's see, down to line 29, from line five to, check that, from
line nine to 29 is, what this is, and you will, is taking the
existing regulations and inserting them into the bill so that the
DNR and the Division of Oil and Gas does not have to go through the
time frame of adopting new regulations and having them notice and
go through the Lt. Governor's situation, and everything else, by
sticking them right in here. And I do need to check out on line 18
there, I'm not sure that six month there isn't, Mr. Boyd, I'd like,
by say tomorrow, if you could look this over and make any
recommendations on these what I call the regulatory section in
here.
Number 0996
MR. BOYD: Well, Mr. Chairman, I'm leaving for Seattle for the Gas
Settlement hearing in the morning. I won't be able to testify
tomorrow. The commissioner will be there.
CHAIRMAN ROKEBERG: How about Mr. Coughlin?
MR. BOYD: We are both going to Seattle for the, for the Gas
Settlement hearing.
CHAIRMAN ROKEBERG: Well, no problem. We'll take care of this
while you're away. Is, how about Mr. Van Dyke? Are you going to
send him into the fray?
MR. BOYD: I think the commissioner will be at the hearing
tomorrow.
CHAIRMAN ROKEBERG: Oh, very good. I appreciate that. But you
might have somebody tune this up if there's any problems with the
regulator section, to say nothing, to say nothing of anything else.
Number 1032
CHAIRMAN ROKEBERG: I'd like to move onto line 30 there, and here
as we need, we might have, line 30 at Sub 2, this has to do with
this, the issue of historic data and what this element is, what
this element does is that for those existing fields we're going to
be prolonging their life, that's Subsection B, or shut in field, C,
that the application include at least five years of leases
production history. This was reluctantly, Mr. Boyd's
recommendation because I had other years, other language in here
earlier on that had something that said to the effect that if there
was a change of ownership that the new lessee wouldn't be
responsible for the history of the prior lessee; however, I felt
that even though I didn't want a sale of the property just to avoid
that requirement so I put a two years in there and then Mr. Boyd
came back with a five year situation, so I think that that language
in there on, unsettled language, if you will, lines 31 on page
three and line one on page four. I, this is something we need to
kind of focus on 'cause it has, the language as it exists is kind
of just a compromise and may not be, I think it may be too onerous
or maybe not complete enough, and just.... And going on from line
two all the way down to, let's see here, the hearing, this is all
regulatory stuff again, down to line 22 on page four. That's Sub
C. Here's the commissioner giving notice of the findings and
determination to the lessee and any other person who has filed a
written request for it subject to denying the subsection, which is
confidentiality, if I'm not mistaken. The commissioner's
determination is firm, final and not appealable by the royalty
reduction applicant to the court. Now, did you check, verify, Mr.
Boyd, that that was okay?
Number 1160
MR. BOYD: That's fine, Mr. Chairman.
Number 1167
COMMISSIONER ROKEBERG: Okay. And this, this relates to the whole
idea of appealability, and so forth and I think it's very specific
in saying "It is intended for this not to be protracted in the
courts." I think we discussed that at great length here and we, we
clearly, the ability of a third party to bring a cause of action in
normal course of due process is not hindered by that, and this is
not what that means. What we're trying to do here is getting a
more or less final determination by the applicant, so he's not
twisting in the wind for years. Okay, then Sub 8 on line 26 goes
on to describe the, the third-party contractor. We've drafted this
so if the commissioner can provide a list of contractors of which
the applicant could select it from, and, and actually hire. This
avoids the procurement code situation and the commissioner sets up
the scope of work that allows the applicant to control that. We
need to take one, take a look at this. I need to review this in
light of some type of a mutual agreement. It's been brought to our
attention, I believe by Marathon Oil or perhaps Unocal, that in
certain instances if they were going to take, pay 20, 30, 40,
50,000 dollars for a third-party contractor, that might be more
money than they get out of the royalty reduction to prolong some
field life, so we need to kind of take a look at that. Like to get
some input tomorrow on that, Mr. Gorsuch, if that would be all
right. And then the, then we go on to the... ah, the oversight.
MR. BOYD: Mr. Chairman.
CHAIRMAN ROKEBERG: Mr. Boyd, sir.
Number 1255
MR. BOYD: Under the contractor paragraph...
CHAIRMAN ROKEBERG: Okay.
MR. BOYD: ...well, you mean at (indisc.) point seven?
CHAIRMAN ROKEBERG: Yes, sir.
MR. BOYD: It says you could retain the residual repayment
services. (Indisc.) the original bill, nowhere in that paragraph
does it actually say that the company will pay for the contractor,
only you could argue that retain means to pay for. You think we'd
pay for (indisc.) here? Is that the committee's intention?
CHAIRMAN ROKEBERG: Well, I think, it is the committee's intent to
have the applicant pay for it.
Number 1288
MR. BOYD: Well, I would argue, Mr. Chairman, that the word retain
is unclear, and retain and pay for is the purpose, might be
clearer.
CHAIRMAN ROKEBERG: Retain and pay for? Inserting "and pay for"?
MR. BOYD: Yes.
CHAIRMAN ROKEBERG: Okay.
REPRESENTATIVE OGAN: Mr. Chairman.
CHAIRMAN ROKEBERG: Mr., Representative Ogan.
Number 1300
REPRESENTATIVE OGAN: Possibly just say they will contract the
services of the contractor? I guess that's redundant. But not
really.
CHAIRMAN ROKEBERG: Yeah, it is. Contracting the contractor is
not, not real.... Anyway.
REPRESENTATIVE OGAN: Okay.
Number 1315
CHAIRMAN ROKEBERG: Representative, wait a minute. Let's see if we
can identify what's going on here. Going back to page five. This
is the oversight situation here. In a nutshell, this says that
after the commissioner makes his final determination he needs to
obtain the concurrence of the attorney general, and also the
Section B inserts the Alaskan Royalty Oil and Gas Development
Advisory Board, but only three of five members as the sixth member
of the board is the commissioner of natural resources. Now, this
is, I think we need to go back and review that statute here.
Whether there, where we can discuss whether three or five or
whatever, but there are now six members of that board? And one of
which is the commissioner of natural resources so he shouldn't be
reviewing his own decision, so we need to look at that. And I
understand that, you know, this is also an area of some debate and
discussion of whether or not we should go to this degree of
oversight. And then we need to look at the recommendations out of
there. They would have 30 days to evaluate the commissioner's
submission and to determine if the reduction meets the best
interests of the state, and then we have Subsection C, which is a,
if Representative Terry Davis's bill passes both bodies, would be
an easy fix, but this limits the distribution of the report to
certain people in the legislature rather than the whole legislature
on down there. Ten says may not, may not adopt regulations to
implement this, and let's see, on item 11, Sub 11, line 29. A
little at ease here.
Number 1440
MR. BOYD: Mr. Chairman.
CHAIRMAN ROKEBERG: Yes, what is it? Mr. Boyd.
MR. BOYD: That, that place refers to (indisc.) licensing that was
added last year.
Number 1448
CHAIRMAN ROKEBERG: Oh, O5.034 Sub 3?
Number 1452
MR. BOYD: 305.134.3 is expiration of licensing.
Number 1450
CHAIRMAN ROKEBERG: Oh, I see. Okay, I understand. Why would that
be in here?
MR. BOYD: Because it had a provision of 12.5 percent royalty.
CHAIRMAN ROKEBERG: Oh, okay. So, that's appropriate to be there?
I think it was in the other bill.
MR. BOYD: Yes, Mr. Chairman. Again, it's just another section
that it would have to apply to, or you wouldn't be able to take
(indisc.) to apply royalty reduction to it.
Number 1475
CHAIRMAN ROKEBERG: Okay. And then going on to the last, page six
is the, is the Section P which is as it was under the Governor's
recommendations applying this to areas that have been unitized.
Section 4 annulled and annuls the regulations that are replaced by
the insertion in the bill. That concludes my brief review, and at
this time because of the time and so forth, I've asked, Mr. Boyd,
if you would care to make testimony?
Number 1500
MR. BOYD: Well, Mr. Chairman, I have nothing further.
CHAIRMAN ROKEBERG: Representative Finkelstein.
Number 1511
REPRESENTATIVE FINKELSTEIN: Can we ask questions of Mr. Boyd?
CHAIRMAN ROKEBERG: You certainly may.
REPRESENTATIVE FINKELSTEIN: Mr. Boyd, this is David Finkelstein.
The, have you ever operated with any statutes related to oil and
gas where your ability to adopt regulations was eliminated?
Number 1525
MR. BOYD: Mr. Chairman, Representative Finkelstein. I have
limited knowledge of that, but no, not to my knowledge.
Number 1537
REPRESENTATIVE FINKELSTEIN: 'Cause, Mr. Chairman, I think we want
to look into what page five, line 28 really means. My experience
with any statutes involving DNR, or virtually any other agency,
we've never said that they can't adopt regulations, and one of the
reasons is even though a lot of this, the regulations that would be
required are already included in the law here, is because it's
impossible to foresee some of the details that come out of these
things. There's issues involving timing, involving costs,
involving what's submitted. One of the reasons we don't know
exactly what regulations are necessary is because under the current
regulations there never was a successful royalty reduction. If
that had ever gotten further, they very well may have learned
various modifications necessary to the regulations. Their only
option now would be to come back to the legislature, which may seem
possible if you, you know, you look at it from the point of view of
this one piece, but it just gets to be impractical in terms of how
our agencies work. The legislature only meets once a year and it's
not the most efficient means to....
Number 1588
CHAIRMAN ROKEBERG: Representative Finkelstein, if I might
interject here at this time, this was a something that grew out of
the drafting, and was not specifically requested, although the
instructions to the drafter were to provide for either adopting new
provisions in existing regulations, or putting in the bill if you
had to, and essentially, that's what he's opted to do on this
draft. And now I, I don't have any problem with what you're
suggesting here, although what we didn't want to do is instruct him
specifically to adopt regulations. We just maybe want to just
delete that and they can if the want to. I mean, you know.
Number 1622
REPRESENTATIVE FINKELSTEIN: All right. They certainly wouldn't be
able to adopt any contradictory regulations with all the things
that are put in.
CHAIRMAN ROKEBERG: Right. Exactly. So, I mean, that, I, if that
would accomplish that from a drafting standpoint, I wouldn't have
any objection with deleting that, you know. That wasn't our
intent, you know. The intent was to give the higher most....
Representative Williams, I think is next.
Number 1635
REPRESENTATIVE BILL WILLIAMS: That was my question also. I'd like
to hear what the department has to say on that and maybe even
industry people. Once it gets into a bill here, it changes. You
know it takes a whole, a long time, quite a process to go through
here trying to encourage (indisc.) to do a little bit more. They
can do it by regulation then it's coming from the state. We could
do it an easier way. You mentioned several times putting the
regulations in the bill. I, I don't know. I'm just concerned
about it.
Number 1673
CHAIRMAN ROKEBERG: Well, I agree. Matter of fact, I'd like to get
recommendations on whether we should leave them in there, or just
amend them 'cause I talked to the drafting council about that
style, and I'm not wedded to any particular methodology. If we
can, there was a few provisions in the existing regulations that
needed to be adjusted to conform, so I, I just, I asked for his
recommendations, this is what he did, so we, we'd be open to
general testimony on the approach. There's a number of, about a
whole page or so here of regulations that could or could not be
deleted from the bill if we can make the proper adjustments in the
regulations, so. And, Representative Brice, did you have a...?
Number 1707
REPRESENTATIVE TOM BRICE: Yeah, just, you know, we don't want to
beat a dead horse on regulations here, but we can write all we want
to statute and if there's no power given to the executive to
implement those statutes, it ain't doing no good. So, yeah, that,
we would definitely would need to look at that or we'll just being
gumming up the statutes with a lot of things, so.
REPRESENTATIVE G. DAVIS: Mr. Chairman.
CHAIRMAN ROKEBERG: Representative Davis.
Number 1730
REPRESENTATIVE G. DAVIS: So, this must be, if we're including the,
I mean, not adopt regulations to implement this subsection, so this
is all, all of the regs that relate to royalty reduction?
Number 1740
CHAIRMAN ROKEBERG: It's, they are the regulations that I brought
to the drafter's attention, and what we have been focusing on. It
could be conceivable regs that might be involved, so.
Number 1750
REPRESENTATIVE G. DAVIS: Yeah, I was interpreting this to...
Number 1755
CHAIRMAN ROKEBERG: These are, the reference on the last page to
the Section 4, page six, 11 AAC 83.185 is annulled, and that's
basically what he's done, he's annulled all those and put them in
the bill. It made a couple of revisions to a couple of sections is
all he's done. Frankly, I asked the drafter if he could, we could
just revise a couple of the sections in the regs, and I told him
to, you know, to use his judgement. He put them in the bill, so.
REPRESENTATIVE G. DAVIS: Okay.
CHAIRMAN ROKEBERG: I need some advice on how we best can handle
that. And those of you on this committee with some more experience
than the chairman, the chairman would appreciate your input there,
so. But, that was the, that was why they are there, so.
Representative Ogan.
Number 1790
REPRESENTATIVE OGAN: Mr. Chairman, this morning in another
committee we had a similar situation that was very extensive bill
that pretty much covered what the drafter included to be most of
the regulations in the bill, and, and repealed, or also had a
provision saying they could not adopt regulations, and that was
repealed just for that reason mainly, you know, while I'm, it's
really not one that endorses having a lot of regulations that,
regulations have a tendency to be drafted and implemented, I
believe, by people who have the hands-on working experience of
implementing and, and they can, the statute happened through
regulation and it is a little bit more of a live, flexible
document. What we ended up in that committee doing was, doing in
that committee, was writing a letter of intent that the
regulations, because the bill was so, if it is passed as a law, it
was so complete that we expect the regulations to be kept to an
absolute minimum. You might want to do that with this.
Number 1845
CHAIRMAN ROKEBERG: Thank you, Representative Ogan. Mr. Boyd.
MR. BOYD: Mr. Chairman.
CHAIRMAN ROKEBERG: I know you've had a very limited time to review
this, but I'm concerned that you will not be available tomorrow.
Is there, could you, would you care to comment on any portion of
this bill, or anything that you find problematic that you might
want to bring to our attention for further discussion?
Number 1862
MR. BOYD: Well, I don't believe that anybody has ever discussed
net profit shares being included in this bill on the record.
Nobody's ever testified that they want it in the bill. We
certainly do not want it in the bill because there's any downside
risk in net profit shares. In other words, this bill is based on,
on this premise that if something changes and the company is harmed
by it, well, if oil prices go down they still have to pay their
royalty. You could argue they're alarmed by that. What happens if
these things go down to net profit share? There's no downside risk
in net profit shares, nothing changes in profit shares, you're not
losing anything. They bid the net profit shares in what I consider
to be good faith in the lease sale, and as long as that particular
lease is on it, they, I, I don't see, I would like somebody on the
record to say what basis they have for reducing net profit shares
under this bill. I don't think you can just say that net profit
shares are royalty and, and just stand there and say that. I think
somebody needs to say why that's so. I believe it's bound to be
so.
Number 1915
CHAIRMAN ROKEBERG: Well, I, I agree with you that it needs to be
on the record, and I have been assured that we will have testimony
tomorrow on that for the information of the committee. Mr. Boyd,
could you, could you describe what the, what the typical net profit
bidding section, I think under Section F, what, are royalties and
net profits normally part of existing leaseholds with that type of
bid procedure?
Number 1932
MR. BOYD: Mr. Chairman, it depends on the bidding methods selected
by the commissioner.
Number 1934
CHAIRMAN ROKEBERG: So, you have variables. You could have both a
royal, a fixed 12.5 percent royalty and a variable net profit bid,
is that correct?
Number 1938
MR. BOYD: That's correct.
Number 1942
CHAIRMAN ROKEBERG: As well as, you know, a subject to all other
forms of taxation, help at all. Is that right? So, this would be
above and beyond the royalty, is that correct?
Number 1950
MR. BOYD: Mr. Chairman, is any, what was one of the permutations
that you mentioned earlier, or a while ago?
Number 1952
CHAIRMAN ROKEBERG: Are there any numbers of leases on the North
Slope that have net profit shares and royalties? Or, is there a
common number or anything?
Number 1954
MR. BOYD: No. I mean, there are, there leases that have those
provisions. I don't know how many of each.
Number 1965
CHAIRMAN ROKEBERG: Right. Well, I appreciate that and this was,
this was added as a request and I do recognize that we haven't
discussed this in the committee, and we will do so tomorrow. As a
result, if we could go on to any other areas there. Oh, what....
Representative Davis had a question.
Number 1975
REPRESENTATIVE DAVIS: Thank you, Mr. Chairman. Mr. Boyd, do you
have any objection to the regulations provisions in the, in the
bill?
Number 1985
MR. BOYD: Mr. Chairman, I have no particular objections. I think
that they are inconsistent as written. I'd just cite one example.
On page three, line 15, two "i"s, that's little double "i" take
location (indisc.) and present activities on (indisc.). Then
later, it goes on to say that you only have to five years. Or,
(indisc.) six months or once the state has (indisc.) application,
There won't be any production from a new lease, or a new field
(indisc.) or whatever. So, I think that there, and there are
others, but I think that that needs to be looked at. I, I don't
think it's completely consistent, Mr. Chairman.
Number 2020
CHAIRMAN ROKEBERG: Well, Mr. Boyd, I agree with you. This is
Chairman Rokeberg. I'm looking at old 11 AAC here, where one of
these regs come from and it's clear how these are just a recitation
of the existing regulations too, in a large part. And that's why
I don't think the drafter had a good time to inform them, but so we
do need, we'd very much like the input of the department on
particularly these regulator aspects here, and you're input there
tomorrow. You could pass that on to the commissioner.
Number 2048
MR. BOYD: Mr. Chairman, we'll review any cracks, but we're not
suggesting that we're going to write the regulations into the bill.
Number 2051
CHAIRMAN ROKEBERG: No, in terms of its consistency, or if these
are appropriate. Representative Finkelstein.
Number 2060
REPRESENTATIVE FINKELSTEIN: Mr. Chairman, in the end I think you
may conclude, and I think I would conclude that it is sort of a
hopeless cause to try to come up with every last detail and put it
in there. You might conclude it's better to just take out these
kind of details and leave that to the regulations. They, but the
bottom line is regulations change a lot more than law. As I said,
after they go through the first round of this and discover various
problems with the regulations, either from their point of view, or
from industry's, they're going to revise them, and they're going to
be in a much, they have to come back and make changes in the exact
statute because of small wording details they will have to wait for
the legislature to act, and I think the usual way of doing it, of
leaving, putting the policies into the law and leaving some of the
details in the regulations, probably suits this subject as well as
any.
Number 2100
CHAIRMAN ROKEBERG: Well, the chair appreciates your comments, and
as I say, I presented both options to the drafter and this is what
it came out as, so I think that's something we need to consider,
and I don't have any, I'm not wedded to any one particular
methodology. My only concern right now is the time it takes to
promulgate a regulation, and the desire on the part of the
division, Mr. Boyd, do you, I think we did take testimony that, and
the bill deleted the adoption of regulations clause, the Governor's
bill did. Where would that have left us and where are we now? I
mean....
Number 2130
MR. BOYD: Mr. Chairman, I believe that with the new oil and gas
law that we believe supersedes the regulations, it implements the
policy that we believe is important to implement without the burden
of writing regulations. And we can do it in the future. That
doesn't say that we cannot write regulations. We can do them as
necessary. We keep citing an old (indisc.) to Trading Bay from 15
years ago, but I do not believe it will be repeated in the future
based on the way that people keep records now. It was never
mentioned in a book or anything else. It was purposely left so we
would not specify regulations be drafted to implement this policy
quickly, and we believe firmly that anything that needs to be
changed in the regulations can be changed. I believe
Representative Finkelstein on the records several times saying, the
regulations don't go away with the new law and could be
reimplemented and cannot contradict the law. One of the things
putting them in the law that contradict this is the benefit.
Number 2160
CHAIRMAN ROKEBERG: I guess that was one of my concerns actually,
was Section 4 of the existing regulations that had, where they
stated "...contain a detailed statement covering the entire life of
the lease showing all expenses and costs of operating a lease..."
etcetera, etcetera. If we were to delete that section would that
work? Representative Finkelstein.
Number 2175
REPRESENTATIVE FINKELSTEIN: Well, Mr. Chairman, that's a good
example, one and, and Mr. Boyd will confirm this that it is
absolutely going to be not in effect as of the passage of this law.
Any time it's so clearly in conflict with what the new law is, that
particular regulation is null and void as of the date of this act.
Now, if there are some in there that continue on such as some of
the ones you've actually stuck in the bill, those could continue,
but any regulations in conflict is just eliminated. It no longer
has any effect.
Number 2200
CHAIRMAN ROKEBERG: Okay, well, I, my personal druthers is to keep
this thing shorter rather than longer, frankly. You know, I, and
well, let's see.
REPRESENTATIVE OGAN: Mr. Chairman.
CHAIRMAN ROKEBERG: Representative Ogan.
Number 2207
REPRESENTATIVE OGAN: I have some mixed feelings about going on the
record about supporting regulations to be honest with you, but
having been in the process before I was in the legislature, I think
that again, the regulations I think are a lot more of a fluid
document, a flexible document.
Number 2230
CHAIRMAN ROKEBERG: Thank you.
MR. BOYD: Mr. Chairman.
CHAIRMAN ROKEBERG: Mr. Boyd.
Number 2233
MR. BOYD: I only offer this as a consideration for the committee,
but I believe, it seems to me the opinion that is building that's
perhaps having all that detail in the bill can become very, very
controversial, contradictory. If that could be taken out and is
moved (indisc.) regulations would the committee consider having a
legislative intent language drafted that you just don't want to
have all this, any more submission of data than the commissioner
deems necessary to make a decision. And we would not only
(indisc.).
Number 2255
CHAIRMAN ROKEBERG: Well, Mr. Boyd, if that's, if that would be
workable and everybody agrees then, I mean, I wouldn't have any
objections then myself. Just to save some time here, Mr. Boyd, on
the language on page two that revolves around what Subsection 3,
starting on line 23? It goes on and adds the sliding scale royalty
and other mechanisms, and I go to, we go on to say the, upon the
currents that change the price of oil proven reserves, well
productivity or capital investment in the oil or gas field pool,
etcetera, etcetera. Would you care to comment on that? I think
you had some problems earlier in the day when we discussed that.
Number 2285
MR. BOYD: Mr. Chairman, I just believe that the way it's written
we have to show things, you've got be able to show a particular
field. That's why in the original bill we just used one example
that as an example of oil and gas price changes, didn't add
anything else. But then you can come in with anything that is
changed. Instead of adding things it seems you have to prove
certain things in conjunction with those things that may not exist
in fields. And that's why I've been on the record in the past
saying I don't like lists.
Number 2310
CHAIRMAN ROKEBERG: I know. I agree that the intent of the author
was not to do that and therefore, we need to clean this language
up, but I wanted you to go on record while you were still in the
state about your lists, so, if we left, if we make sure the
commissioner's flexibility was there would you have any objections
to those four elements there which are pointed out: price,
reserves, productivity and capital investments.
Number 2330
MR. BOYD: No, Mr. Chairman. Those are four things that may or may
not go into a commissioner's decision.
Number 2338
CHAIRMAN ROKEBERG: Right, and I agree. They, they would not be
dictated as in or out. I mean, the intention would be to make them
optional to the commissioner when he drafted his agreement. So, if
that were clearly the case would that, would that cause you any
heartburn?
MR. BOYD: No, Mr. Chairman.
CHAIRMAN ROKEBERG: Thank you very much. Let's see could we go on
to the issue on ...
TAPE 95-15, SIDE B
Number 0000
CHAIRMAN ROKEBERG: ...put this five years in there in lease
production history and I'm not entirely comfortable on that. Do
you have any other.... Do you care to comment on that and give us
your thought on that, Mr. Boyd?
Number 0027
MR. BOYD: Mr. Chairman, I, I pointed out several inconsistencies
and I believe the discussion to be bottled around removing that
whole section.
CHAIRMAN ROKEBERG: Well, that particular one will survive I assure
you. It's what form it will survive in is the issue I think.
Number 0050
MR. BOYD: Once again, Mr. Chairman, as Representative Finkelstein
has said, if you (indisc.), I guess, but it goes away when you,
when the law passes because it's just inconsistent with the law.
Number 0073
CHAIRMAN ROKEBERG: This is, what we're trying to get at here, is
the issue of how much historic data has to be provided by the
company on the older fields.
Number 0085
MR. BOYD: I understand the issue and again, whether it's five
years, or two years, or four years, it's a clear and domestic
showing. And if it takes three years to then it's going to take
three years. If it takes five years, it takes five years. If it
takes two years, it takes two years. Again, I don't see the
purpose of it. I think it can go with the rest of the regulatory
language as has been suggested it be removed, which I concur.
(Indisc.) five years then (indisc.)so again, I think you're putting
limitations on that's unnecessary.
CHAIRMAN ROKEBERG: Thank you, Mr. Boyd. Representative
Finkelstein.
Number 0125
REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. As you, as
Mr. Boyd says, you have already solved the problem on page two,
line 27 when you eliminated the words "with respect to the lessee's
total investment in the field" you've eliminated the statutory
authority for those regulations. And by doing so those regulations
are gone. The, and all you're left with is the commissioner doing
their best to get the information necessary and the exact number of
years. You know, I suspect that with the kind of thing that
changes over time as they learn, you know, go through this process
themselves to bring (indisc. - static). Clearly though the basis
for any historic requiring as an absolute prerequisite for this
royalty reduction, the historic investment in information would no
longer be allowed. You couldn't have that in the regulations
because of the eliminations of that line. Each place, the key on
regulations is if you go through them each regulation always has
the statute it's based on, and since you've eliminated that
statute, or we would have eliminated that statute, that regulation
could no longer exist.
Number 0210
CHAIRMAN ROKEBERG: But, here we had specific fact pattern which I
know will come and I don't look at this as really regulatory base.
This is a, this speaks to a set of circumstances that -- I believe
we heard testimony that needed be ameliorated and it doesn't
necessarily, it really isn't an issue as far as regulations. It
was an issue in how the director of the oil and gas division
interpreted the regulations, and he may have formulated the
application. You know, if there was, and I think the problem,
putting up obstacles when two of the applicants, when they didn't
have the information, frankly. And in the existing fields or shut
in fields, the historic life other than to verify the fact that
they are substantially declined in production, the most important
element in any grant really is the investment and new future
investments by the company to continue producing oil. And that's
what's needed in a very diminishing or substantially declining
field is reinvestment and that's what should be focused on. I
think the commissioner should look at requiring the investment
before he makes any royalty reduction to keep the field pumping.
That would, I think that's the testimony here. Representative
Davis.
Number 0320
REPRESENTATIVE G. DAVIS: Thank you, Mr. Chairman. I'm not so sure
that testimony, I think the, there was a request for information
that Marathon could not provide because it was before their time.
But I think that's, was the discretion of the, of the director
that, that requested the information. I think they have that
discretion and if there's something about the application that is
creating them from making an informed decision, and they need more
information, and if that information isn't available as it wasn't
in that case, then a decision can be made. But if, and that's
still going to be the case. That's still going to be the case if
everybody wants, requests a royalty reduction and, and they can't
make a determination based on the data that's given them, so they
ask for more information and if that information can't be provided
a determination isn't going to be made. So it's still there. I
mean, like, like it was indicated if it, maybe it just takes one
year of data. Maybe it will take six years of data. So, so it's,
I agree with Mr. Boyd. It doesn't seem to be necessary.
REPRESENTATIVE FINKELSTEIN: Mr. Chairman.
CHAIRMAN ROKEBERG: Representative Finkelstein.
Number 0410
REPRESENTATIVE FINKELSTEIN: Mr. Chairman, it is the old problem
of, sometimes the problems do come out of policy. Sometimes they
do come out of regulations, but this problem came out of the law
and by changing this section you're solving the problem. They,
they had no choice but to take that approach back then in looking
at those issues because the standard of law made it directly in
respect to the lessees's total investment of the field. It was
those words that are a problem and you, you fixed it on page two.
So, from then on it gets all total point set. Representative Davis
was making as to exactly what they're after to help to make their
decision, but there won't be any absolute requirement of any
historical investment information because that log's gone.
Number 0460
CHAIRMAN ROKEBERG: Well, Mr. Boyd, could we move on to page five
as the introduction of the Alaska Royalty Oil and Gas Development
Advisory Board?
Number 0470
MR. BOYD: Yes, Mr. Chairman. The commissioner (indisc. - static),
I don't believe the commissioner has these (indisc.) on the record,
but I have (indisc.) things that he does object to having both
levels of review. He believes that the concurrence of the attorney
general's decision that he made a determination in good faith.
He's written a finding (indisc.). And has been real, the
composition of the Royalty Board, generally speaking, and the
preference of the Royalty Board doesn't serve it's purpose real
well because historically it's never been used for this purpose and
I think this last week though (indisc.). But it's a very awkward
group to bring together to review something (indisc.) familiar with
I believe adds an awful lot of time and (indisc.) call review, but
I think it really adds very, very little to the process (indisc.)
a very large amount of public process you have built into the law
already. If the attorney general would be able to review it for,
you know, just for any flaws in procedures and things and the
Royalty Board would rarely be able to accomplish that.
REPRESENTATIVE G. DAVIS. Mr. Chairman.
CHAIRMAN ROKEBERG: Representative Davis.
Number 0540
REPRESENTATIVE G. DAVIS: Thank you, Mr. Chairman. I, I agree. I
was concerned about this, about this section in listening to all
the debate. I think it was fairly well pointed out that this is
such a technical nature, plus a confidential nature, that, you
know, the findings and the, sometimes the trust level is greater in
some areas than in others, and I think, I think the trust level and
the determination in the findings and everything by the, by the
commissioners is adequate. You know, I would certainly, I think,
be willing to consider a review by the Attorney General, but
personally, I don't see a need for either one myself.
CHAIRMAN ROKEBERG: Representative Finkelstein.
Number 0590
REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. I don't have
any very useful view on the oil and gas development advisory board.
I'm not particularly familiar them and their activities, and their
composition, but I would say it would be sort of pointless to have
this, the section be built around the attorney general because the
way things work in state government is the attorney general's
office provides the attorneys that assist the department, and it's
implicit in decisions that are made that the attorney general
supports the decision. I mean, they work hand in hand. They're
already they're attorneys. It, so it having it just be the
attorney general wouldn't achieve anything because they are already
working with the department, and they are participating in these
kind of decision-making processes. They are, are the executive's
attorney.
Number 0645
CHAIRMAN ROKEBERG: I would agree with Representative Finkelstein
and we heard testimony to that effect. The, actually this section
of the bill, I think, is most important as far as this committee is
concerned as far as the oversight and overview provisions.
Representative Gary Davis.
Number 0665
REPRESENTATIVE G. DAVIS: Yeah, Mr. Chairman, I agree and I know
that, you know, the public concern and the public input and
oversights for public's benefit is always a thing you like to
consider and try and include as much as possible, but again, the
technical nature and the confidential nature and the work that goes
into the findings is, is quite extensive. So, that's where, that's
where I think that the public's interest is served.
Number 0700
MR. BOYD: Mr. Chairman.
CHAIRMAN ROKEBERG: Mr. Boyd.
MR. BOYD: The other thing would be, now that you've added back in
that the nonapplicant can appeal it. I believe the other bill did
protection and review. If, in fact, an aggrieved party now, then
the applicant, and presumably the applicant has agreed to the whole
process, and it was agreed the applicant not the nonapplicant now
finds it to be insufficient or somehow deficient, now appeals the
court.
Number 0730
CHAIRMAN ROKEBERG: Well, I, I'm not sure we did that. I can't,
I'm not sure we can take credit for that, Mr. Boyd. Did you think
we changed that, that intent of the Governor's bill by putting
applicant in there?
Number 0745
MR. BOYD: Yes, Mr. Chairman, you do. I believe you add a
different level as I testified last week and handed out the
articles on appealability. If you have an appealability clause or
nonappealability clause in there it sets a different standard for
the courts. Now, the point is a nonapplicant can go to the court
whereas is before (indisc.) you could not go to the court; however,
in the matter of oil you'd have to deny if you can, in fact, go to
court although he cannot go for frivolous meanings. The reason we
drafted the bill without the words (indisc.) applicant and it was
for that purpose to disallow frivolous law suits that (indisc.) for
(indisc.) from months to years. As long as you put it back in, I
mean, it sort of builds in your protection that desiccates the law,
no oversight.
Number 0790
CHAIRMAN ROKEBERG: Well, Mr. Boyd, I'm, I'm a little bit surprised
to hear that. That's not what, what I understood, but maybe it's
just my own failure to intellectually absorb all the information
that we've had lately. We'd be certainly willing to take a look at
that if you thought that the probability of an outside third-party
filing a cause of action against this process would be broadened by
adding the applicant's name, I'd be happy to take it out of there.
Number 0820
MR. BOYD: Mr. Chairman, the original bill does not have the words
in there. I've never asked that they be put back in. And I've
handed out the (indisc.) to the committee on a nonappealability
and read some of it into the record, I believe it was on Friday
(indisc.). And, and going through this exactly as I'm going
through this now, but if you leave out, if you leave the bill the
way it was, there is still the option, you get the opportunity for
people to go to court, only on a higher standard. By putting the
words you have in the bill, by changing it, now you allow items of
what I would call a lower standard.
CHAIRMAN ROKEBERG: Representative Finkelstein.
Number 0860
REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. The, the
bottom line in this is that the way this is really going to work is
that the, the entity that is going to be inclined to appeal
virtually every case is going to be, the one who has the most at
stake and has already made the investment is the applicant, so how
the provisions apply to the applicant are most important. I don't,
I see the point that Mr. Boyd is making, but there is already a
system in place, I mean, we have to get into a long drawn out thing
and get a number of attorneys in here to talk about treatment of
frivolous cases, and how that occurs. There's a system in place
currently to check, to ferret those out, there'd be a new system in
place under this new standard. In either case they aren't, you
know, that simple to discern. If they were, of course, they'd be
thrown out instantly. It's really a question of what the standards
are and if someone is after that kind of review, they will fit in
and come up with a case that, you know, is certainly going to meet
whatever requirements are in law. People don't usually reflect
what the standards are and apply under those standards that this
action is in violation of the law of the constitution because of
something that fits those standards. I guess my point is I don't
think it makes much either, difference either way. I think this
language is fine, but I also think that there's, partly because of
the opinion that we received that taking out any reference to its
appealability is fine. The, I don't think it's that big a deal.
Number 0950
CHAIRMAN ROKEBERG: Well, Mr. Boyd, if you could have somebody from
the AG's office confirm what you just said for the record tomorrow,
I'd be greatly appreciative of it, and if you think that it would
set a higher standard by removing the applicant, the word
"applicant" I would be happy to recommend that to my committee.
PATRICK COUGHLIN OF THE ATTORNEY GENERAL'S OFFICE: This is Patrick
Coughlin with the Attorney General's Office.
CHAIRMAN ROKEBERG: Ah, yes.
Number 0975
MR. COUGHLIN: If you, if you, on line, on page four, line 45,
words have been inserted from the Governor's draft by the royalty
reduction applicant. If that remains in there it would be my
opinion that you would have created a different standard for an
attempt by the companies, or a person, an attempt, again, a company
is a company asking that versus the attempt by a third-party to go
to court.
Number 1015
CHAIRMAN ROKEBERG: Excuse me, Mr. Coughlin, where, where are you
again here now? page 4, yeah, okay.
Number 1030
MR. COUGHLIN: It says, that which, well, beginning on page, on
line 24 it says the commissioner's determination is final and not
appealable by the royalty reduction applicant to the court. I
suggest that the limitation apply only to the applicant, not to
nonapplicants. So, if, if you leave the clause "by the royalty
reduction applicant" in the bill, in my opinion that you create
your standard case. It would be more difficult for the applicant
to have the commissioner's determination overturned than it would
be for the third party.
Number 1062
CHAIRMAN ROKEBERG: I agree, but would, oh, I see, our new CS has
gone to the courts up here. Okay, well, it's not appealable to the
court here. Okay, not appealable. I see that. So, you would, you
would recommend removing "by the royalty reduction applicant".
Number 1080
MR. COUGHLIN: It is the wish of the committee to have the same
standard apply both the applicant and to other interested parties,
the nonapplicant who may appear at a public hearing and so forth,
and yes, that would be my recommendation.
Number 1096
CHAIRMAN ROKEBERG: Okay. Mr. Coughlin, having had a very brief
time to look at this, is there any other things that we haven't
touched on that you might want to comment on?
Number 1108
MR. COUGHLIN: I think that Mr. Boyd, I tried to catch the
inconsistencies that I found in what you have referred to as the
regulatory portion of the bill, and I think Mr. Boyd expressed them
all, but I'm not sure. I guess I'll check, I'll check again
tonight to see if I find anything else.
Number 1132
CHAIRMAN ROKEBERG: If I'm not mistaken I think the sense of the
committee is that we're going to remove those from the bill.
Number 1135
MR. COUGHLIN: Yes, well, that would be my, my primary legal
concern is that it appears that there was an inconsistency, but I
think, you know, that....
Number 1140
CHAIRMAN ROKEBERG: Very good. We're about ready to wrap it up
here.
REPRESENTATIVE FINKELSTEIN: Mr. Chairman.
CHAIRMAN ROKEBERG: Representative Finkelstein.
Number 1150
REPRESENTATIVE FINKELSTEIN: May I ask two more questions of Mr.
Boyd?
CHAIRMAN ROKEBERG: Certainly.
REPRESENTATIVE FINKELSTEIN: Mr. Boyd, I asked a question at the
last meeting and I forgot the answer. The question was, what's
going to stop a company that failed to get a lease because they bid
a lower level in a royalty case, what's going to stop them from
going to court when the royalty reduction is given to protest the
royalty reduction because they weren't allowed to bid on a lease
involving that level of royalty?
Number 1177
MR. BOYD: Yeah, Mr. Chairman, I believe I answered the question,
and I believe there was really nothing that could prevent them,
somebody from suing us, but I'll ask Patrick Coughlin to maybe give
a better answer than I gave.
Number 1182
REPRESENTATIVE FINKELSTEIN: Mr. Coughlin, did you understand the
question?
Number 1196
MR. COUGHLIN: If the question, yes, I understand the question.
The, the answer is that that Mr. Boyd gave, which is nothing.
Whether or not a court would find that giving a reduction to a, a
lessee would somehow violate the integrity of the bid, bidding
process, would be a very factual, specific question. It would, if
the same situation could have arisen, however, under, under
existing law because existing law, even if you don't make, even if
this bill were not to pass there's still authority to royalty
deductions. All, I would note that every lease that has ever been
issued by the State of Alaska has a provision in it stating that
the, there can be royalty reduction; therefore, every bidder, and
this is, has been on notice that under certain circumstances
royalty can be reduced. Short answer to your question, and, that,
yes, a bidder could, a bidder at the sale didn't win could appeal
and there's nothing that prohibits that, and whether they would be
successful and think somehow this, negate the integrity of the bid
process, I think the court would simply look at the circumstances
in the fining, you know, the findings of the commissioner, and it
would be a very statute specific determination by the court.
Number 1277
REPRESENTATIVE FINKELSTEIN: Mr. Chairman, that was, well that was
helpful because if you're saying every single contract for lease
that exists has provision in it that says this lease provisions are
subject to modification due to later royalty reductions. If that's
already in the lease then I think we're covered.
Number 1290
MR. COUGHLIN: Our, our current, this is Mr. Coughlin again, our
current lease forms said that royalty reductions may be granted as
provided by the same current statute, does not show, that's what it
says.
Number 1204
REPRESENTATIVE FINKELSTEIN: Yeah, I, I, we might be a little bit
vulnerable by switching the statute and making it easier, but at
least we have something. My last question was for Mr. Boyd. On
confidentiality if we took out the provision on confidentiality, we
went back to the status quo, can you explain how the status quo
works on confidentiality? What if the industry's application is
made public, and what remains confidential?
Number 1327
MR. BOYD: Mr. Chairman, as I recall, and again, maybe Patrick can
help me out here, but the company can keep confidential what the
company wishes to keep confidential and it can relate to anything
that it wants.
Number 1338
REPRESENTATIVE FINKELSTEIN: No, but not under the bill, but under
the status quo, right. Prior to this bill's passage under existing
law, what of the information -- I know there's been some court
decisions that relate to what should be made public and what isn't.
Number 1348
MR. COUGHLIN: Well, Mr. Chairman and Representative Finkelstein,
this is Patrick Coughlin again. Existing law currently provides
that, that any financial information submitted in support of any
application is, shall be held confidential by the Department of Law
with (indisc. - papers rattling) information. You know, and the
answer is any financial information that a company would submit in
support of a royalty reduction application would be required by law
to be kept confidential if the company requested it.
Number 1388
REPRESENTATIVE FINKELSTEIN: And that's in existing law?
Number 1392
MR. COUGHLIN: Yes, in fact, the cite I can give you is 38.05.035
(A)(9). I have it right before me if you'd like me to read it to
you.
REPRESENTATIVE FINKELSTEIN: If it's short, that would be helpful.
Number 1400
MR. COUGHLIN: Okay, well, I'll read the first section. It says,
"The director shall maintain such records as the commissioner
considers necessary..." and then it goes on to say, "...the filing
records and files shall be kept confidential upon the request of
the person supplying the information..." you know, gets to the
pertinent one. "File status and financial information submitted in
support of applications, bonds, leases..." and so on.
Number 1426
REPRESENTATIVE FINKELSTEIN: And how would, how does that existing
standard differ from what we're doing in this bill on
confidentiality?
Number 1430
MR. COUGHLIN: It's my understanding that, that, that the draft we
have before us, the committee substitute versus simply incorporate
that provision made in this bill. I can't find the statute.
CHAIRMAN ROKEBERG: It's in there somewhere.
Number 1460
REPRESENTATIVE FINKELSTEIN: Is the way we're doing it though,
that's page four at the top, you're saying all of the items that
are in this subsection with the large, with the capital "B" are
confidential and the ones in the subsection with the capital "A"
aren't confidential. I don't see much difference.
Number 1476
CHAIRMAN ROKEBERG: Are you referring to the CS?
REPRESENTATIVE FINKELSTEIN: Yes.
CHAIRMAN ROKEBERG: No. That's a universal application as I read
it then. So, we just added that to, out of the original bill in
the regulatory section. That's an add-on from the Governor's bill
into this section, but they hadn't seen it yet. There's also
regulations, as I recall, on the, that provide for the handling of
confidential information in the hearing process, if I'm not
mistaken. I know I've reviewed those briefly, but I don't have
them in front of me. So, there's regulatory backup for that
statutory confidential thing, and how you handle the documents
themselves. It's inside of this related regulatory section under
confidentiality. Are there any more questions, David?
Number 1535
REPRESENTATIVE FINKELSTEIN: No. Thank you, Mr. Chairman. I, no
I actually answered all my questions. There were a number of areas
I still had concerns with on the, on the CS, but I can bring those
up tomorrow.
Number 1540
CHAIRMAN ROKEBERG: Yeah, we're going to take out all the
regulatory stuff. There's a few things like that we'll leave in
there 'cause that was from the old (indisc.) bill and I think it
would be our intention to do so.
Number 1552
REPRESENTATIVE FINKELSTEIN: Maybe, Mr. Chairman, I could just
mention them now quickly.
CHAIRMAN ROKEBERG: Yes, do.
REPRESENTATIVE FINKELSTEIN: Without actually trying to discuss
them because some of them have been discussed before. These are
the areas that I, things that after going through today, that I am
still worried about. One is the floor, I, I think the floor of the
original bill was better, the two different standards applying to
everything.
CHAIRMAN ROKEBERG: Wait a minute. Excuse me. I don't understand
your point there.
REPRESENTATIVE FINKELSTEIN: Well, we originally said that the, you
couldn't go below 50 percent for leases after a certain date...
CHAIRMAN ROKEBERG: Right.
REPRESENTATIVE FINKELSTEIN: ...and 25 percent before, and now
we've...
Number 1577
CHAIRMAN ROKEBERG: That was a stipulation that was a result of an
endeavor to coordinate it with the permanent fund statute though.
Number 1584
REPRESENTATIVE FINKELSTEIN: Oh no, Mr. Chairman, I'm talking
about, now about the other one, the, when you're dropping...
CHAIRMAN ROKEBERG: Right.
REPRESENTATIVE FINKELSTEIN: ...oh, I see, that was the reasoning
behind (indisc. - both talking).
Number 1590
CHAIRMAN ROKEBERG: Yeah, that's why there was, see, that was just
because of the differential between the permanent fund. See, there
was a statutory requirement for the level of contributions, and of,
you know, there's a touchstone date in 1980.
REPRESENTATIVE FINKELSTEIN: I understand now.
CHAIRMAN ROKEBERG: So that was why it happened, but this is why I
reinserted this, if you recall, we discussed that. This is why we
put in a floor there, but as it relates, as it is written right
here as it relates to new fields, so.
Number 1612
REPRESENTATIVE FINKELSTEIN: Right. Now, I think, I guess the
only, the concern I have, and I think the commissioner expresses at
one point is that there should be some sort of floor, that they
shouldn't be allowed to reduce to zero. And I....
Number 1620
CHAIRMAN ROKEBERG: I'd do that for new fields, the question is is
the old fields.
REPRESENTATIVE FINKELSTEIN: Right, and I....
CHAIRMAN ROKEBERG: And that's just kind of a debateable thing.
Number 1621
REPRESENTATIVE FINKELSTEIN: Right, right. So I was just
expressing there is some debate there. That's all.
Number 1626
CHAIRMAN ROKEBERG: No, no, no. I agree, I mean, I understand it.
I mean, I, I, believe that the marginal fields, the way the yield
curve is should go down. But, we need to tie it up and actually,
we're going to adjourn and I'll talk to David on our own here, if
you like. I want to thank Commissioner Boyd, I mean, Director Boyd
and Mr. Coughlin for coming. Please stay in touch from Seattle if
you are interested, and we'll, give us your phone number, Ken.
Thank you very much.
And this meeting is adjourned at 6:30. Thank you very much.
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