Legislature(1997 - 1998)
03/24/1998 05:06 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 24, 1998
5:06 p.m
MEMBERS PRESENT
Representative Scott Ogan
Representative Norman Rokeberg
Representative Joe Ryan
Representative Con Bunde
Representative Tom Brice
Representative J. Allen Kemplen
MEMBERS ABSENT
Representative Mark Hodgins, Chairman
COMMITTEE CALENDAR
HOUSE BILL NO. 393
"An Act relating to contracts with the state establishing payments
in lieu of other taxes by a qualified sponsor or qualified sponsor
group for projects to develop stranded gas resources in the state;
providing for the inclusion in such contracts of terms making
certain adjustments regarding royalty value and the timing and
notice of the state's right to take royalty in kind or in value
from such projects; relating to the effect of such contracts on
municipal taxation; and providing for an effective date."
- HEARD AND HELD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 393
SHORT TITLE: DEVELOP STRANDED GAS RESOURCES
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
2/11/98 2280 (H) READ THE FIRST TIME - REFERRAL(S)
2/11/98 2281 (H) OIL & GAS, FINANCE
2/11/98 2281 (H) 2 FISCAL NOTES (DNR, REV)
2/11/98 2281 (H) GOVERNOR'S TRANSMITTAL LETTER
2/19/98 (H) O&G AT 11:00 AM CAPITOL 124
2/19/98 (H) MINUTE(O&G)
2/24/98 (H) O&G AT 10:00 AM CAPITOL 124
2/24/98 (H) MINUTE(O&G)
2/26/98 (H) O&G AT 10:00 AM CAPITOL 124
2/26/98 (H) MINUTE(O&G)
3/03/98 (H) O&G AT 10:00 AM CAPITOL 124
3/03/98 (H) MINUTE(O&G)
3/05/98 (H) MINUTE(O&G)
3/09/98 2578 (H) RES REFERRAL ADDED
3/10/98 (H) O&G AT 10:00 AM CAPITOL 124
3/10/98 (H) MINUTE(O&G)
3/12/98 (H) O&G AT 10:00 AM CAPITOL 124
3/12/98 (H) MINUTE(O&G)
3/19/98 (H) O&G AT 10:00 AM CAPITOL 124
3/19/98 (H) MINUTE(O&G)
3/24/98 (H) O&G AT 10:00 AM CAPITOL 124
3/24/98 (H) MINUTE(O&G)
3/24/98 (H) O&G AT 5:00 PM CAPITOL 124
WITNESS REGISTER
JOHN SHIVELY, Commissioner
Department of Natural Resources
400 Willoughby Avenue, 5th Floor
Juneau, Alaska 99801
Telephone: (907) 4532400
POSITION STATEMENT: Testified on CSHB 393(O&G).
PATRICK CARTER, Legislative Assistant
to Representative Hodgins
Alaska State Legislature
Capitol Building, Room 110
Juneau, Alaska 99801
Telephone: (907) 465-2283
POSITION STATEMENT: Testified on CSHB 393(O&G)
ACTION NARRATIVE
TAPE 98-27, SIDE A
Number 0001
VICE-CHAIR CON BUNDE called the House Special Committee on Oil and
Gas meeting to order at 5:06 p.m. Members present at the call to
order were Representatives Bunde, Ogan, Rokeberg, Ryan, Bunde,
Brice and Kemplen.
HB 393 - DEVELOP STRANDED GAS RESOURCES
Number 0073
VICE-CHAIR BUNDE announced the committee would continue to hear HB
393, "An Act relating to contracts with the state establishing
payments in lieu of other taxes by a qualified sponsor or qualified
sponsor group for projects to develop stranded gas resources in the
state; providing for the inclusion in such contracts of terms
making certain adjustments regarding royalty value and the timing
and notice of the state's right to take royalty in kind or in value
from such projects; relating to the effect of such contracts on
municipal taxation; and providing for an effective date." He
stated that the committee would continue to hear Representative
Ryan's amendments.
Number 0115
REPRESENTATIVE JOE RYAN made a motion to adopt Amendment 7, 0-
GH2006\B.11, which reads:
Page 13, line 10, following "royalty":
Insert "on gas"
Page 13, following line 31:
Insert a new subsection to read:
"(d) Nothing in the chapter permits modification of
the state's rights that relate to timing, notice,
and rights to receive oil royalty in kind or in
value under oil and gas leases or unit agreements."
VICE-CHAIR BUNDE objected for discussion purposes.
Number 0137
REPRESENTATIVE RYAN stated that the commissioner is given the
authority to make concessions (INDISC. -- STATIC ON TAPE).
Number 0246
JOHN SHIVELY, Commissioner, Department of Natural Resources, stated
that they did not have an objection to the amendment. He stated
that Representative Ryan is correct, it does separate out gas from
oil.
Number 0227
REPRESENTATIVE SCOTT OGAN made a motion to consider an amendment to
Amendment 7; on page 13, line 9, delete "oil and".
Number 0312
REPRESENTATIVE NORMAN ROKEBERG objected.
COMMISSIONER SHIVELY stated that it is correct as written because
the leases are oil and gas leases. Representative Ryan is trying
to make sure that the royalty on the oil part of that is not dealt
with.
REPRESENTATIVE OGAN withdrew his amendment.
REPRESENTATIVE RYAN stated that no one has really gone to look for
gas yet (INDISC.-- STATIC ON TAPE).
Number 0380
VICE-CHAIR BUNDE removed his objection. He asked if there was a
further objection, hearing none, Amendment 7 was adopted.
Number 0393
REPRESENTATIVE RYAN made a motion to adopt Amendment 8, 0-
GH2006\B.12, which reads:
Page 13, lines 20-23
Delete all material and insert:
"(4) the modification does not impair the ability
of the state to meet the demand in this state for
gas during the term of the contract entered into
under AS 43.82.020."
VICE-CHAIR BUNDE objected for discussion purposes.
Number 0443
REPRESENTATIVE RYAN stated that the demand for gas in the state be
ensured in the bill. He stated that seven-eights of the gas would
belong to the producer and one-eighth, the states royalty share, is
allowed to be committed long term. He stated that there is nothing
specific that says the gas will be made available for in-state use.
Number 0522
REPRESENTATIVE OGAN stated that to be technically correct,
Amendment 8, on line 4, the words "entered into" should be changed
to "developed".
Number 0612
REPRESENTATIVE ROKEBERG asked why he chose not to use the words in
the existing subsection and is deleting in regard to the ability of
the approved pipeline project to meet the demand rather than the
state.
Number 0612
REPRESENTATIVE RYAN replied (INDISC.-- STATIC ON TAPE) he is trying
to ensure that there is gas for the people.
Number 0697
REPRESENTATIVE ROKEBERG stated that he thought the thrust of the
amendment was to delete the concept of economic proximity, he asked
what his driving point was. (INDISC.-- STATIC ON TAPE)
Number 0739
REPRESENTATIVE RYAN stated that he wants the state to be able meet
the demands. He stated that he did not want this to be entered
into on a long term contract and not have any gas for in-state use.
Number 0765
REPRESENTATIVE ROKEBERG stated that he agreed with the intent. He
referred to page 13, subsection (4) (INDISC -- STATIC ON TAPE).
Number 0818
COMMISSIONER SHIVELY stated that they talked about making gas
availabe on page 9, line 7. He stated that the state is one
possibility but in Cook Inlet royalty gas is not used, it comes out
of the private sector. In the future royalty gas may be used.
Amendment 8 requires the state to do this and the administration
wanted a broader interpretation to say that a qualified project
would provide for it, how it is provided can fall under a number of
options.
Number 0905
REPRESENTATIVE ROKEBERG stated that he had a conceptual amendment
on page 13, line 20-23, to insert "or the state" after "qualified
project" and delete, "within economic proximity of the project".
Number 0976
REPRESENTATIVE RYAN stated that Dr. van Meurs gave the price of
$3.50 on the Pacific Rim versus $1.00. He stated that the
economics of this may work out that the same quality gas may only
be worth $1.00, which would mean there would be more money to be
made in exporting the gas to the Pacific Rim (INDISC. -- STATIC ON
TAPE). He stated that his point is to have gas available in-state.
VICE-CHAIR BUNDE asked "if he saw a possibility that sets the
demand in the state for gas that would give rise to demands from
Western Alaska, that the state build a gas pipeline on the West
Coast."
Number 1085
REPRESENTATIVE RYAN replied that at the present time he did not.
VICE-CHAIR BUNDE asked if this would set it up so that Bethel could
file suit and say that the state has to build them a pipeline and
provide them with gas.
Number 1100
COMMISSIONER SHIVELY stated that is the department's concern, by
deleting the words "economic proximity" because Bethel could ask
for gas to be set aside in the event that they may need it someday.
He stated that the term is in there to state that if the gas could
be economically provided, it would be.
Number 1125
REPRESENTATIVE ROKEBERG said, "that unless proximity meaning Cook
Inlet in the general definition section then I have a problem if
that is what he meant.
Number 1146
VICE-CHAIR BUNDE stated that economic proximity is defined in
definition.
Number 1153
COMMISSIONER SHIVELY stated that it is the feeling that Anchorage
could be economical if someone was willing to purchase and
transport the gas into that market.
Number 1172
VICE-CHAIR BUNDE asked if he understood correctly, that a project
manager would do this for the state.
Number 1153
COMMISSIONER SHIVELY stated that industry would have to come
forward to be willing to make a deal, up-front before a line is
constructed.
Number 1223
REPRESENTATIVE OGAN asked if on page 13, line 21, the words "or the
state" were added after qualified project and "within economic
proximity of the project" was then left in, would that address the
concerns. He moved that be considered as an amendment to Amendment
8.
Number 1282
REPRESENTATIVE RYAN agreed.
Number 1292
REPRESENTATIVE ROKEBERG stated that he agreed with it.
COMMISSIONER SHIVELY replied that would be fine.
VICE-CHAIR BUNDE asked if there was an objection to the amendment
to Amendment 8. Hearing none, it was so ordered. He asked if
there was an objection to Amendment 8, as amended, hearing none
Amendment 8, as amended was adopted.
Number 1335
REPRESENTATIVE RYAN made a motion to adopt Amendment 9, 0-
GH2006\B.13, which reads:
Page 13, line 24:
Delete "Notwithstanding any contrary"
Insert "Subject to the"
VICE-CHAIR BUNDE objected for discussion purposes.
Number 1357
REPRESENTATIVE RYAN stated that this paragraph in the bill gives
the commissioner of natural resources the authority to develop any
terms for royalty (INDISC. -- STATIC ON TAPE). He stated that
there already are provisions. He stated that we would be chopping
up the state's one-eighth of the royalty share.
Number 1413
COMMISSIONER SHIVELY stated that the amendment would negate the
section. He stated that this is talking about a valuation method
as there has been substantial litigation, but the purpose of the
paragraph is that the commissioner of revenue will come up with a
system for how the valuation is arrived at. He stated that the
same valuation method would be used for the royalty. He stated
that the language that the amendment would delete, is needed. He
stated that if the legislature does not believe the departments
should have that flexibility then the whole paragraph should be
deleted.
Number 1483
VICE-CHAIR BUNDE asked if these provisions, between the two
commissioners and the affected parties, would come before the
legislature for approval.
Number 1495
COMMISSIONER SHIVELY stated that was correct. If the legislature
thought that the valuation method chosen for royalty was incorrect,
and thought that the state's fair share of royalty was going to be
given away, then the legislature would have the right to object.
He explained that this was different from HB 207.
Number 1528
REPRESENTATIVE RYAN stated that Kuwait is about the same size of
Alaska and has about amount of oil and they get 88 percent royalty
and Alaska receives 12 percent. (INDISC. -- STATIC ON TAPE) He
stated that Alaska is getting the short end of the stick.
Number 1628
COMMISSIONER SHIVELY stated that it needs to be kept in mind that
Kuwait is a country and Alaska is a state. The state gets its take
which is the royalty and some taxes and the federal government gets
its take on top of that. He stated that the take off of the oil
field is much more than 12.5 percent.
Number 1652
REPRESENTATIVE OGAN asked if the amendment would be subject to AS
38 which precludes making any adjustments on royalties.
Number 1669
COMMISSIONER SHIVELY stated that is correct, it negates the
section.
Number 1679
REPRESENTATIVE OGAN asked that under the other provisions of the
bill, we are allowing the state to make adjustments on a lot of
other oil and gas taxes (INDISC. -- STATIC ON TAPE). He asked if
it is enough of an incentive or does basis royalty needs to be
looked at.
Number 1742
COMMISSIONER SHIVELY stated that in the tax section it is
definitely talking about changing the taxes themselves, either by
elimination or combining, etc. He stated that in this section it
is not talking about changing the royalty itself but the valuation
method. He stated that it is true that with substantial changes to
a valuation method the amount that the state gets changes, but the
royalty would still be 12.5 percent.
Number 1769
REPRESENTATIVE OGAN asked about the evaluation method.
Number 1784
COMMISSIONER SHIVELY stated that it starts with a price and then
deduct costs from that, (INDISC.-- STATIC ON TAPE).
Number 1815
REPRESENTATIVE OGAN asked if the tax and a transportation costs are
high then there could be the possibility (INDISC. -- STATIC ON
TAPE).
Number 1850
COMMISSIONER SHIVELY stated that if a commissioner negotiated a
valuation system that guaranteed the 12.5 percent royalty was zero
and the legislature did not catch it, it would be a problem of
public trust. He stated that the royalty should be left as is
because of the situation of no basic value. He stated that a
commissioner who negotiated away a whole royalty based on changing
the valuation system would be violating the legislature (INDISC. --
STATIC ON TAPE).
Number 1889
REPRESENTATIVE RYAN talked about the difference of the valuation
systems on the same products in different countries (INDISC. --
STATIC ON TAPE). He stated that we are dealing with the potential
of 34 trillion cubic feet of discovered gas. He stated that there
are a lot of problems in setting up two commissioners to set out
methodology of valuing the figures in relation to a contract that
has yet to be negotiated with the buyer. He stated that he is
uncomfortable and we are giving away a lot of authority. He stated
that he is concerned about the end result (INDISC. -- TAPE STATIC).
Number 2011
COMMISSIONER SHIVELY responded that if litigation were to occur the
settlements are negotiated in confidence and the legislature would
not be involved. He stated that this gives the legislature an
opportunity to see the valuation method up-front.
Number 2044
REPRESENTATIVE OGAN stated that he would like future legislators to
scrutinize the valuation method.
Number 2087
VICE-CHAIR BUNDE called for a roll call vote. Representatives Ryan
and Ogan voted in favor of Amendment 9. Representatives Brice,
Bunde, Kemplen and Rokeberg voted against Amendment 9. Amendment
9 failed.
Number 2096
REPRESENTATIVE RYAN made a motion to adopt Amendment 10, 0-
GH2006\B.14, which reads:
Page 16, following line 1:
Insert a new section to read:
"Sec. 43.82.235. Contract term relating to a
project labor agreement. The commissioner shall
include in a proposed contract submitted to the
legislature for approval under AS 43.82.200 a term
that requires the qualified sponsor or qualified
sponsor group and contractors of the qualified
sponsor or qualified sponsor group to develop and
enter into a project labor agreement with
appropriate collective bargaining organizations for
the project."
VICE-CHAIR BUNDE objected for discussion purposes.
Number 2132
REPRESENTATIVE RYAN stated that it is the only way to ensure
Alaskan hire (INDISC.-- STATIC ON TAPE).
Number 2187
VICE-CHAIR BUNDE stated that he supported the concern but did to
feel that it would be a fix (INDISC. -- STATIC ON TAPE).
Number 2223
REPRESENTATIVE TOM BRICE stated that a one year eligibility
requirement is the least we can do. He stated that this amendment
could address a lot of the ills that have occurred through the
pipeline (INDISC.-- STATIC ON TAPE). He stated that putting the
project labor agreement in the bill is not all that bad.
Number 2307
REPRESENTATIVE OGAN stated that it is something that the private
sector should make the decision on and it is something that he is
going to be voting against.
Number 2368
VICE-CHAIR BUNDE asked for a roll call vote. Representatives
Brice, Kemplen and Ryan voted in favor of Amendment 10.
Representatives Bunde, Ogan and Rokeberg voted against Amendment
10. Amendment 10 failed.
COMMISSIONER SHIVELY made the suggestion that Amendments B.15-B.17
be incorporated into one amendment as the department does not have
an objection to them.
Number 2377
REPRESENTATIVE RYAN made a motion to adopt Amendment 11, 0-
GH2006\B.15-17.
Number 2399
REPRESENTATIVE ROKEBERG objected and stated that he is not sure
about version B.17 and asked for an explanation.
Number 2414
REPRESENTATIVE RYAN stated that he does not know what the Budget
and Audit committee does because he is not a member. He stated
that it will be making momentous decisions (INDISC. -- STATIC ON
TAPE). He stated that he would like to be informed as to what is
going on. He stated that deals are being made and money is being
given away and as an elected official he is not going to be made
privy to that.
TAPE 98-27, SIDE B
Number 0011
VICE-CHAIR BUNDE stated that all members of the legislature are
welcome to attend as the executive sessions were never meant to
exclude the legislature, it is only excluding members of the
public.
Number 0030
REPRESENTATIVE ROKEBERG stated that he only room big enough to hold
each house of the legislature is the house chambers. He objected
to combining Amendment, 0-GH2006\B.17 in Amendment 11.
Number 0060
VICE-CHAIR BUNDE asked if there was an objection to 0-GH2006\B.15
and B.16. Hearing none, Amendment 11 was adopted which reads:
Page 19, line 5, following "Law,":
Insert "to the legislature,"
Page 19, line 10, following "Law,":
Insert "the legislature,"
Page 19, line 15:
Delete "may be disclosed"
Insert "shall be disclosed on request"
Number 0087
VICE-CHAIR BUNDE stated that Amendment 12,0-GH2006\B.17 was now
before the committee which reads:
Page 21, line 26:
Delete "the Legislative Budget and Audit Committee"
Insert "each house of the legislature in executive work
session"
Page 21, line 27:
Delete "the committee"
Page 21, line 29:
Delete "the Legislative Budget and Audit Committee"
Insert "a house of the legislature"
Page 21, line 30:
Delete "the committee"
Insert "that house of the legislature"
Delete "the committee's"
Insert "that house's"
Page 21, lines 30-31:
Delete "and all members of the legislature"
Page 22, lines 9-10:
Delete "Legislative Budget and Audit Committee under AS
43.82.410(3)"
Insert "legislature"
Number 0092
REPRESENTATIVE OGAN stated that if it is referring to the House
during the regular session then the decisions (INDISC.--STATIC ON
TAPE). He asked if it would be cumbersome for the House as a whole
to meet during executive session.
Number 0132
REPRESENTATIVE RYAN responded that it would reflect that everybody
is welcome. He asked everybody may not want to attend but at least
everybody has the opportunity.
Number 0179
VICE-CHAIR BUNDE stated that in previous meetings it has been
pointed out the legislature is invited to the executive sessions
and were required to sign a nondisclosure agreement.
Number 0198
REPRESENTATIVE OGAN asked how it would be referred to the
legislature, would it be through the committee process.
Number 0226
REPRESENTATIVE RYAN replied that if it is presented to the
legislature during executive session. The body would have the
opportunity to attend and not have to pay the price of the airline
ticket to do so.
Number 0289
REPRESENTATIVE ROKEBERG stated that he appreciated Representative
Ryan's intent and agrees with him. He stated that he would ask
that the committee adopt by reference the entire record of HB 207
on this subject.
Number 0383
VICE-CHAIR BUNDE asked for a roll call vote. Representatives
Brice, Ogan and Ryan voted in favor of Amendment 12.
Representatives Bunde, Kemplen and Rokeberg voted against Amendment
12. Amendment 12 failed.
Number 040
VICE-CHAIR BUNDE made a motion to adopt Amendment 13 which is a
technical amendment that reads:
Refers to Page 18, line 26 of the CS Amendment 1, page 4, line
12 - following "public disclosure or"
Insert "public disclosure"
Refers to Page 18, Line 30 of the CS
Amendment 1, page 4, line 17 - Following "information"
Delete "and"
Insert "or"
Number 0420
PATRICK CARTER, Legislative Assistant to Representative Hodgins,
stated that it is a technical amendment to Amendment 1. He read
Amendment 13.
Number 0528
REPRESENTATIVE RYAN stated that he has a problem being a part of a
public body that is doing the public's business and having all this
confidential information running around. He stated that all the
resources in the state of Alaska is owned by the people.
Number 0549
REPRESENTATIVE BUNDE stated that we would be guilty if malfeasance
if we destroyed the commercial value of the interest by our
actions.
Number 0565
VICE-CHAIR BUNDE called for a roll call vote. Representatives
Brice, Bunde, Kemplen, Ogan, Rokeberg and Ryan voted in favor of
Amendment 10. Amendment 10 passed.
Number 0636
VICE-CHAIR BUNDE stated that Representative Ryan has some more
amendments to be heard at a future meeting. He recessed the House
Special Oil and Gas meeting to the call of the chair at 6:10 p.m.
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