01/18/2005 10:00 AM House OIL & GAS
| Audio | Topic |
|---|---|
| Start | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HJR 4 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
January 18, 2005
10:03 am
MEMBERS PRESENT
Representative Vic Kohring, Chair
Representative Nancy Dahlstrom
Representative Berta Gardner
Representative Norm Rokeberg
Representative Ralph Samuels
MEMBERS ABSENT
Representative Beth Kerttula
Representative Lesil McGuire
OTHER LEGISLATORS PRESENT
Representative David Guttenberg
Representative Mary Kapsner
Representative Mike Kelly
Representative Kurt Olson
Representative Jay Ramras
Representative Woodie Salmon
COMMITTEE CALENDAR
HOUSE JOINT RESOLUTION NO. 4
Urging the United States Congress to pass legislation to open
the coastal plain of the Arctic National Wildlife Refuge,
Alaska, to oil and gas exploration, development, and production.
- MOVED CSHJR 4 (O&G) OUT OF COMMITTEE
OVERVIEW: DIVISION OF OIL AND GAS
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HJR 4
SHORT TITLE: ENDORSING ANWR LEASING
SPONSOR(S): REPRESENTATIVE(S) HAWKER
01/10/05 (H) READ THE FIRST TIME - REFERRALS
01/10/05 (H) O&G, RES
01/18/05 (H) O&G AT 10:00 AM CAPITOL 124
WITNESS REGISTER
REPRESENTATIVE MIKE HAWKER
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as the sponsor of HJR 4.
KEVIN HAND, Director
Arctic Power
4041 B Street
Anchorage, Alaska 99503
POSITION STATEMENT: Answered questions regarding Arctic Power.
MARK MYERS, Director
Division of Oil & Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Presented an overview of the Division of Oil
& Gas.
REPRESENTATIVE CARL GATTO
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Posed questions to Mark Myers.
CHAIR VIC KOHRING called the House Special Committee on Oil and
Gas meeting to order at 10:03:36 AM. Representatives Kohring,
Rokeberg, Dahlstrom, Samuels, and Gardner were present at the
call to order.
HJR 4 - ENDORSING ANWR LEASING
10:05:27 AM
CHAIR KOHRING announced that the first order of business would
be HOUSE JOINT RESOLUTION NO. 4, "Urging the United States
Congress to pass legislation to open the coastal plain of the
Arctic National Wildlife Refuge, Alaska, to oil and gas
exploration, development, and production."
REPRESENTATIVE MIKE HAWKER, Alaska State Legislature, sponsor of
HJR 4, expressed his interest in opening the Arctic National
Wildlife Refuge (ANWR) to oil development, and stated that this
resolution mirrors the language used in the prior year's
resolution.
10:07:56 AM
CHAIR KOHRING opened the meeting to public testimony. No one
wished to testify, so he closed the public hearing.
10:09:06 AM
KEVIN HAND, Director, Arctic Power, in response to questions
from Representative Rokeberg, stated that Arctic Power personnel
are hard at work in Washington, D.C. He said that lobbying is
expensive and "our opponents ... have the capability to raise a
much greater amount of resources than we do." He requested that
Arctic Power be included in the governor's supplemental budget
request for $1.85 million to continue efforts lobbying the U.S.
Congress. He also mentioned HB 32, which would appropriate $1.3
million to Arctic Power.
MR. HAND, in further response to Representative Rokeberg,
clarified that Arctic Power has requested $1.85 million from the
governor. He said that Arctic Power is "in somewhat of a
healthy shape", and has been fundraising and soliciting the
support of business, industry, and the people of Alaska.
Although Arctic Power is able to fund its operations currently
but he predicted "some things taking place in D.C. and
nationwide where it would quickly exhaust our resources to be
able to take place in that debate."
10:13:07 AM
REPRESENTATIVE ROKEBERG asked Mr. Hand if there was an "informal
nosecount" of supporters in the U.S. House and the U.S. Senate.
MR. HAND responded affirmatively, and stated that the election
results have been favorable to Arctic Power, which has many
supporters and strong allies in the U.S. Congress. He remarked
that Arctic Power made specific gains in the U.S. Senate, where
a net of three votes were picked up to [place ANWR] over the
"threshold of 50 votes". He stated, "If it came up to an up-
down vote in the U.S. Senate ... we have votes there hard and
fast for the supporters of ANWR."
10:15:28 AM
REPRESENTATIVE ROKEBERG referred to the final resolve in HJR 4,
which states:
FURTHER RESOLVED that the Alaska State Legislature
opposes any unilateral reduction in royalty revenue
from exploration and development of the coastal plain
of the Arctic National Wildlife Refuge, Alaska, and
any attempt to coerce the State of Alaska into
accepting less than the 90 percent of the oil, gas,
and mineral royalties from the federal land in Alaska
that was promised to the state at statehood.
REPRESENTATIVE ROKENBERG said that this has to do with the
"historic 90:10 - 50:50 argument". He asked Mr. Hand to explain
how that "plays in Washington" and what effect it has had in the
past.
MR. HAND answered that the resolution calls for a 90:10 split to
the State of Alaska. He mentioned that, historically, the U.S.
Congress has changed this to a 50:50 split, "There is some
question with the Statehood Act and such, with the legal
precedent it involved". He pointed out that U.S. Congressman
Don Young has refiled a bill which calls for a 90:10 split to
the State of Alaska.
10:18:29 AM
CHAIR KOHRING requested that the committee take action on the
legislation, acknowledging that there was an amendment that the
committee needed to address.
REPRESENTATIVE SAMUELS moved to adopt Amendment 1, labeled 24-
LS0179\A.1, Chenoweth, 1/14/05, which read:
Page 3, line 23, following "Representatives;":
Insert: "the Honorable Nancy Pelosi, Minority
Leader of the U.S. House of Representatives;"
Page 3, line 24, following "Senate;"
Insert: "the Honorable Harry Reid, Minority
Leader of the U.S. Senate; the Honorable Pete V.
Domenici, Chair of the Energy and Natural Resources
Committee of the U.S. Senate;"
REPRESENTATIVE ROKEBERG objected for discussion purposes.
REPRESENTATIVE HAWKER explained that the amendment would make a
minor change to HJR 4; it would add three names to the list of
resolution recipients.
10:19:58 AM
REPRESENTATIVE ROKEBERG asked how much it would cost to make
additional copies of the resolution to send to "the Democrats
who've never supported this position". He voiced his concern
about "the reluctance on the part of the Democratic Party as a
party platform as well as ... through their leadership in
Congress to not support this concept in the past."
CHAIR KOHRING commented that the resolution wouldn't be sent to
all members of the Democratic or Republican parties, just to
certain leaders.
REPRESENTATIVE GARDNER noted that for the Alaska State
Democratic Party, "It is part of the party platform to open ANWR
and it does us no harm, and could be of great benefit, to
underline that with the national leaders as well."
REPRESENTATIVE ROKEBERG agreed with the "theory of trying to
broaden the net and [get] more support for this". He said,
"Organized labor has supported this in the past and I look
forward to their support in the future because of the amount of
jobs this activity would generate throughout the country." He
withdrew his objection.
10:22:07 AM
There being no objection, Amendment 1 was adopted.
10:22:15 AM
REPRESENTATIVE SAMUELS moved to report HJR 4 as amended out of
committee with individual recommendations and the attached zero
fiscal note. There being no objection, it was so moved.
^OVERVIEW: DIVISION OF OIL AND GAS
10:22:55 AM
MARK MYERS, Director, Division of Oil and Gas, Department of
Natural Resources, presented an overview of the division. He
informed the committee that the high oil prices have helped the
division tremendously. He separated the money that the state
earns directly from oil and gas into two segments: money the
state receives as the owner of the resource; and the money the
state receives through the general power of taxation. He
presented a brief overview of the state petroleum revenue
sources [see handout, page 3: "The State Revenue Pie"]. He said
that the majority of the revenue comes from "our actual
ownership of the oil".
10:27:53 AM
MR. MYERS explained that the State of Alaska has received about
$1.4 billion in royalties as a landowner. Of that money, three-
quarters goes to the general fund (GF) and one-quarter goes to
the permanent fund. About $362 million went into the permanent
fund in fiscal year (FY) 2004.
MR. MYERS pointed out that the state's tax incomes are divided
into three categories: the severance tax, the corporate income
tax, and the oil and gas property tax. Two-thirds [of the total
tax income] comes from the severance tax, while one-third comes
from the other taxes. Mr. Myers noted that, last year, the oil
and gas revenue made up about 87 percent of the unrestricted GF.
10:29:19 AM
MR. MYERS emphasized the need for increased oil and gas
exploration. He recommended that several companies explore
together because it requires a significant investment in risk
capital. He observed that, judging by current trends, future
exploration will be completed by independent companies. He
urged [the legislature] to encourage these companies to commence
exploring in the very near future.
MR. MYERS referred to a bar graph on page 5 of the handout
entitled "Fiscal Year Oil and Gas Revenue From State Lands" to
explain the state's current revenue from landowner royalties.
MR. MYERS stated that the exploration activities on the North
Slope have been fairly average for the past few years. He used
a map entitled "North Slope Oil and Gas Activities and
Discoveries January 2005" of page 6 of the handout to point out
this year's key exploration wells. He said he found it
encouraging to see the diversity of new explorers that are going
into predevelopment activities.
10:36:14 AM
MR. MYERS, in response to Representative Gardner, related his
belief that there is adequate resource potential, and that the
state needs to determine the best way to attract capital. He
commented that the state needs to have more technical data
available to the independent companies, and needs to be user-
friendly for investors. He highlighted the importance of shared
facility access and the elimination of red tape and commercial
barriers.
MR. MYERS, responding to a question by Representative Rokeberg,
stated that a stable tax regime, particularly one that
encourages reinvestment, is an important element. He questioned
whether the current Alaska tax regime was appropriate to
encourage new investment.
MR. MYERS, in response to Representative Samuels, said that
there is a large amount of gas in the North Slope, and if it is
proven to be commercial-grade, it will be a win-win proposition
for both oil and gas. He speculated on areas throughout the
North Slope that will be "predominantly gas-prone with oil". He
stated, "The incremental advantage [of] producing the gas and
oil together greatly increases the economics of the field."
10:45:34 AM
MR. MYERS then discussed the North Slope development activities
for 2004 and 2005. He stated that the main reservoirs in North
Slope production are in a steady state of decline; about 27
percent of the current production is coming from areas that have
begun producing within the last 10 years.
MR. MYERS then turned the committee's attention to Cook Inlet,
where the first indications of a gas shortage are becoming
apparent. He advocated for more efficient use of pipeline
infrastructure, more offshore exploration, and for the continued
acceleration of onshore drilling. He stressed that "getting a
jack-up rig in the inlet, ... getting three or four companies
willing to ... take the exploration risk to go drill those
wells" are two key components to exploration in Cook Inlet.
MR. MYERS, at the request of Chair Kohring, described a jack-up
rig for the committee. This type of mobile rig is used to
explore in deeper water; it has giant legs that can be raised in
order to float the rig to a particular location where the legs
are then lowered and the drilling platform rises up. He said
that there used to be jack-up rigs all over Alaska, but they are
no longer in the state. The rigs are still used in the Gulf of
Mexico and overseas; to transport a rig to Alaska now is very
expensive. He suggested that the cost could be spread out if
the rig were used for several projects.
MR. MYERS, in response to a question from Representative
Gardner, replied that directional drilling techniques are
currently being used offshore, but there is a limit to the
effectiveness of such a technique; offshore in Cook Inlet there
are geological and engineering constraints requiring that
drilling occur within two or three miles of shore. He said that
there are points where it is technologically better to set an
offshore platform and drill straighter holes.
10:55:19 AM
CHAIR KOHRING announced that the committee would recess until
the conclusion of the House floor session.
CO-CHAIR KOHRING reconvened the House Special Committee on Oil
and Gas at 11:49:02 AM. Representatives Kohring, Samuels,
Gardner, and Dahlstrom were present at the call to order.
Representative Rokeberg arrived while the meeting was is
progress.
11:50:31 AM
MR. MYERS presented an overview of the division's work on the
proposed gas pipeline. He said [the division] is currently in
negotiations with the producer's consortium for both the
upstream and midstream components for gas production and for a
gas line. [The division] is in separate negotiations with
TransCanada and others for an independently constructed pipeline
that is focused on the midstream portion. [The division] has
spent an extensive amount of time creating economic models for a
gasline, and has developed a sophisticated pricing model.
MR. MYER said that the state has put together a comprehensive
offer for the producers, which he felt would significantly
improve the economics for the producers. In fact, producers
recently returned a counter-proposal. The state's proposal
involves a significant amount of state involvement, and the
state would market and sell gas.
11:52:58 AM
CHAIR KOHRING asked if there would be less financial risk for
the producers if the state took partial ownership of the
pipeline.
MR. MYERS responded as follows:
There's kind of two issues there. One is the issue of
state ownership of the pipeline and the other is the
state shipping gas as a shipper on the pipeline, and
they're really distinct issues. If you look at
ownership in the pipeline, if you're an upstream
producer, then you generally want to acquire a 15
percent rate of return or so upstream. Pipelines
simply are regulated utilities that don't make that
kind of money. Therefore, if you invest your capital
in a project that is going to receive overall less
than 15 percent rate of return, then it's a net drag
on your actual rate of return that you use as ... an
investment metric. The state takes a chunk of that
and we might be delighted with a 14 percent rate of
return, for example. For a governmental entity, a
guaranteed long-term relatively safe 14 percent rate
of return looks pretty attractive, where it won't for
an oil company necessarily. So, in that case
ownership in the pipeline improves the rate of return
calculations for the producers. What it does not do
is improve their cash flow, because, again, pipeline
is a real good cash asset, and it provides a steady
stream ... amount of cash. So depending on how a
producer is looking at the ... investment in the
project, it can be a ... very positive thing, in the
sense of raising the rate of return, but it has a
potential negative effect on cash flow. So there's a
balancing there for them ... as there is for the
state. ... So bottom line is, in general though, if
the metric is truly the rate of return on the project
state ownership in the pipe helps. It also shows that
we're serious about getting the project done.
11:55:17 AM
MR. MYERS explained that there would be a risk-sharing component
between the state and the producers; if the state takes its
royalty taxes or converts its taxes to royalty, the state would
be freeing the producer of the obligations they normally have to
transport and market the gas. By owning some of the capacity in
the line, the state would be taking part of the shipper's risk.
Mr. Myers stated that, with the expected prices, the risk is not
that significant to the producers and shippers, although they
may prefer to share it. He emphasized the importance of filling
the capacity on the pipeline, and marketing the gas at a price
that is higher than shipping prices.
MR. MYERS described negotiating on the midstream section of the
pipeline and discussed methods for the state to be involved in
an independent pipeline.
11:58:19 AM
REPRESENTATIVE SAMUELS noted that [the state] might fear that a
producer-owned pipeline would have too much control since they
would own the gas, the pipeline and the market. He said that
[the state] might also fear that an independent pipeline
wouldn't have any incentive to keep costs down.
MR. MYERS agreed with Representative Samuels. He said the state
needs to ensure access to and expandability of the proposed
pipeline. He stated that [the division] has not dismissed a
liquefied natural gas (LNG) project; [the division] is still in
the process of analyzing aspects of such a project.
12:02:58 PM
CHAIR KOHRING asked if there are any other states that have a
partial-ownership agreement.
MR. MYERS answered that, to his knowledge, there are no other
states with such an agreement.
CHAIR KOHRING asked if there is any strategic advantage for the
state to own part of the Trans-Alaska Pipeline System (TAPS).
MR. MYERS responded that this is an issue [the division] needs
to fully analyze. In response to Representative Rokeberg, Mr.
Myers said that [the division] is exploring the option [of
owning part of TAPS].
12:05:54 PM
REPRESENTATIVE ROKEBERG asked if Mr. Myers knew what the
dismantlement, removal, and restoration (DR&R) reserves were for
the owners of TAPS.
Mr. MYERS stated that he did not know; the state and federal
governments have not defined how much cleanup they will require,
and so it is difficult to know how expensive the cleanup will
be.
REPRESENTATIVE ROKEBERG stated:
Much of that has already been written off ... on the
books of the owners, and one of the ongoing debates
has been whether that money should have been reserved
in [indisc.] a sinking fund and put aside, and the
producers/owners have always indicated that ... the
strength of their balance sheet was sufficient to be
able to cover this cost.
MR. MYERS remarked that during the state's recent renewal the
right-of-way recently it insisted on parent company guarantees.
12:08:59 PM
REPRESENTATIVE ROKEBERG pointed out that the state requires the
salvage or removal of platforms in Cook Inlet. He stated that
one of his goals is to ensure that his constituents have enough
gas to heat their homes in the future. He recalled a recent
Department of Energy (DOE) study released last July that
indicated there is significant shortage in Cook Inlet. He said
he had heard that a spur line from any gas project would cost
about $300 million. He asked Mr. Myers to tell the committee
what kind of volume [a spur would provide] and how much money
would be necessary to study the spur.
MR. MYERS explained that [the division] assumes that a volume
equal to current usage will have to come from a North Slope
pipeline, which is "approximately 200 million per day ... to
feed Fairbanks and Southcentral. ... It's about 80 bfc [billion
cubic feet] per year internal." He said that one would also
need to account for industry usage as well.
12:11:15 PM
REPRESENTATIVE ROKEBERG asked if Mr. Myers had an estimated cost
for the preliminary engineering requirements.
MR. MYERS replied no; but estimated that the upfront costs would
be in the tens of millions of dollars.
REPRESENTATIVE CARL GATTO, Alaska State Legislature, asked:
When we ... say we have to do DR&R when the line no
longer has a throughput, how much throughput is
considered enough to count it as throughput and at
what level do we say ... "At 50 barrels a day, you're
just pushing oil through the line so you don't have to
take it apart."?
MR. MYER answered that it all depends on price, but he thinks
that around 200,000 barrels per day through TAPS is "where the
next huge traunch of reengineering probably would have to be
done." He said that [a company] could theoretically push much
smaller volumes through a pipeline, but the cost of the tariff
and the cost of maintaining the infrastructure, even in a
depreciated pipeline, would become so high that it would not be
economically feasible to do it. He commented that the economic
limit number has historically been "between 300 and 200 thousand
barrels."
12:13:14 PM
REPRESENTATIVE GATTO asked if a major producer who wanted to get
out of the DR&R could push 50 barrels a day through the line on
the assumption that this would be cheaper than actually removing
the line and restoring the environment to its original state.
MR. MYER replied, "We're seeing a micro-version of that in the
Cook Inlet platforms." He referred to legislation passed a
couple of years ago that gave automatic royalty reductions at
certain levels to extend the life of the platforms. He stated
that there is a threshold at which the operational costs exceed
the liability [of the cost of abandonment]. He said that there
are other methods besides parent company guarantees that can be
used for companies that are not as financially strong or if
financial conditions change over time.
REPRESENTATIVE GATTO asked:
Would we be violating any federal laws if indeed we
tried to negotiate with the companies to say, "If you
leave it in place, and you're off the hook for DR&R,
and that's worth a billion dollars to us, we'll take
the billion and leave it."?
MR. MYERS replied that there are environmental standards that
have to be met no matter who does the final abandonment; if the
state took the money it would be obligated to meet those
requirements. He explained that there are some discretionary
requirements within the state which are conditions of the right-
of-way lease, but there are pipeline sections on federal and
Native lands, and the state would have an obligation to meet
those right-of-way lease agreements.
12:17:12 PM
REPRESENTATIVE ROKEBERG commented:
We have at least a [$]10 billion property replacement
value in the $20 to $30 billion cost of building an
oil pipeline. So we have a huge national asset that's
only running at 50 percent capacity. ... One major ...
argument for opening up ANWR would be that we have
this enormous transportation asset .... If we did, as
a state, own a portion of the TAPS we could ameliorate
some of the access problems for independence, if we
opened up ... that portion of the line and made sure
it was more openly accessible to the independent
producers.
CHAIR KOHRING commented that perhaps another committee should
amend the ANWR resolution to reflect this.
REPRESENTATIVE ROKEBERG noted that, in the 10 years he has been
in the legislature, the state has gone from under 50 percent to
almost 63 percent reliance on imported oil. This is due mostly
to the diminution of North Slope production by a million barrels
a day.
12:19:06 PM
CHAIR KOHRING asked Mr. Myers to describe the effects of bills
passed by the legislature last year, specifically House Bill 28
and Senate Bill 285, and to say whether they have "extended the
lives of the rigs in Cook Inlet and delayed their eventual
shutdown."
12:20:03 PM
MR. MYERS replied, "[Senate Bill 285] certainly has helped ... I
would call it a pretty efficient incentive." He described
current platform activities in Cook Inlet. He noted that
another big incentive was the development tax credit for gas,
and said that whether due to the incentives or the natural
marketing conditions, exploration activity is occurring for
smaller and smaller onshore gas fields.
REPRESENTATIVE ROKEBERG mentioned other previous bills
concerning oil and gas development.
12:23:51 PM
MR. MYERS said that the recent development incentives have been
very focused and deliberate, and are more likely to succeed than
the "broad brush" approach. He noted that the impacts of the
overall larger severance tax credit is more difficult to
measure. He remarked that this credit could really be useful in
a frontier basin where there is no infrastructure.
MR. MYERS commented that it's important for the state to get the
"right terms" on the potential gas pipeline because it could
have a major long-term effect on the state's economy. He said:
If we look at something in terms of the potential of
the North Slope being in the several hundred tcf
[trillion cubic feet] versus the 35 tcf, it makes a
huge difference in the way the project is viewed from
a national perspective, but also from the state's
long-term ... fiscal future. It also means that ...
if the exploration potential ... materializes, then
the economic impact to the state increases
dramatically.
MR. MYERS stated that there are two major elements on the North
Slope: conventional gas and gas hydrates. Hydrates are about
180-200 times denser than the same volume of conventional gas;
the United States Geological Survey (USGS) estimates that there
are at least 100 tcf of gas hydrates underlying the existing
infrastructure in the Prudhoe-Kuparuk-Milne Point area. In
comparison, that's more gas than is present in the Prudhoe Bay
and Point Thomson conventional reservoirs.
12:28:48 PM
MR. MYERS estimated that the United States uses about 70 billion
cubic feet (bcf) per day. He emphasized the need for [the
state] to quantify the gas potential in order to get the
explorers to find and develop the resources as quickly as
possible, and to begin long-term commercial tests with gas
hydrates.
MR. MYERS said that it is important that the gas pipeline be
designed such that it is able to expand. He stated, "Every
well, ... in my knowledge, in the North Slope that's been
drilled encountered gas. The gas belt is huge out through the
entire slope and out into the Beaufort Sea ... [there is a] huge
quantity of gas, both conventional and nonconventional."
MR. MYERS discussed coalbed methane potential on the North
Slope, noting that the division does not yet know how to carry
out coalbed methane production in areas with permafrost. He
made an economic comparison with conventional gas, saying that
the latter could be initially produced at a much lower cost.
MR. MYERS, in response to Representative Rokeberg, stated that a
significant quantity of gas and some oil was found in the
Chukchi Sea. He said that perhaps technology will exist in the
future to enable production out there.
12:34:41 PM
MR. MYERS explained that DOE has recently funded major studies
on gas hydrate potential. New modeling suggests that gas
hydrates within the existing Milne Point-Prudhoe Bay area could
be produced at economic rates. He said that he will be going
out to Washington, D.C., next week with a joint proposal to
continue hydrate funding. He said that there is no production
of gas hydrates in Alaska at this time. Moreoever, he said he
didn't know of any dedicated hydrate production anywhere in the
world. He noted that there has been some initial production
testing, and he thinks [hydrates] could easily add another 50-
100 tcf of reserve base to the North Slope.
MR. MYER, in response to Representative Rokeberg, said that he
believes there are other deposits of gas hydrates in northern
Canada and the Mackenzie River areas, and he's sure there are
other locations as well. He explained that the gas hydrates on
the North Slope appear to be charged by the conventional gas
system, and they are in conventional structural trapping
mechanisms.
MR. MYERS stated that there were two recent DOE-funded projects
on the North Slope: in the first, Anadarko Petroleum Corporation
drilled for hydrates while testing out its Arctic platform with
some new drilling technologies. He said, "They were less than
successful on the hydrate leg of that." In the second project,
BP-Alaska focused on evaluating hydrates.
12:38:58 PM
MR. MYERS, in response to Representative Gatto, related his
understanding that Anadarko is looking for different commercial
uses for the Arctic platform; the one they built was a small
prototype version. He said there is no drilling application for
it right now, but maybe some day it can be used for drilling in
ANWR.
MR. MYER described other alternate technologies, such as modular
production equipment and lighter weight rigs. He said that the
administration is considering building staging areas in the
[Brooks Range] foothills, among other possibilities. He
emphasized the need for lowering exploration costs in areas that
are far away from infrastructure.
12:42:47 PM
MR. MYERS presented a quick overview of additional projects,
particularly those dealing with the proposed gas pipeline. He
noted that Doyon Limited Corporation is working with the U.S.
Fish and Wildlife Service on a land swap in the Yukon Flats
basin. The USGS recently "upped their resource estimate" based
on seismic data of the basin, where they have a mean estimate of
5.5 tcf. He also commented on the Copper River basin, where a
small company will be drilling an exploration well. He said,
"We're starting to see these other basins going to the next wave
of exploration; people have acquired the licenses ... now the
drilling has started ... so that's very encouraging news for
us."
MR. MYERS stated that the leasing program is going very well.
He noted that preparations are being made for the Bristol Bay
lease sale for this fall. In fact, the Best Interest Finding
(BIF) will be completed by the end of this month. He said that
there has been tremendous local support for this project on the
Alaska Peninsula.
12:46:14 PM
MR. MYER noted that [the division] is doing additional
geological fieldwork and making technical information available
to industries. Next week [the division] will have people at the
National Petroleum Exposition to promote [oil development on the
Alaska Peninsula]. He opined that [the state] has "a real shot
at a basin that could provide an LNG project." He remarked on
other topics: the governor's continued meetings with independent
companies; the streamlined permitting that "seem to be working";
the need to encourage maximizing use of existing facilities;
changes in shallow gas licensing; and development of new
infrastructure by Point Thomson.
12:51:02 PM
REPRESENTATIVE ROKEBERG voiced concern about the scoping and
costs for the BIFs for "coalbed methane-type or expiration
licensings".
MR. MYERS answered that these license areas lock [the land] up
for about a seven-to-ten year period, so "it's not like you go
back and have an areawide sale every year."
REPRESENTATIVE ROKEBERG asked what the annual lease payments to
the state are [by Usibelli Coal Mine Inc. for the Healy Basin
Exploration License Area], and if this is enough to offset the
cost of the BIF.
MR. MYERS answered, referring to page 23 of the handout entitled
"Proposed Healy Basin Exploration License Area":
The $500,000 ... is merely the work commitment, so
it's a dollar per acre or that initial application
fee, and we actually lowered the rentals ... in order
to make it competitive with the shallow gas leasing
program, if they choose ... a gas-only process. So
truly this will be marginally self-funding ... it will
probably pay for its cost in terms of the upfront fee;
... it will not do a whole lot more than that. On the
other hand, we're getting the basin evaluated.
Recognizing these areas simply do not have the same
potential return on investment you do on the North
Slope, so ... in all honesty we are foregoing money in
this process. We've increased the cost structure but
we have a public process that's acceptable, whereas we
really didn't on the shallow gas-leasing program.
12:54:02 PM
REPRESENTATIVE ROKEBERG remarked that it's costing the GF to
have this type of a licensing program.
MR. MYERS agreed, and said that [the division] had not wanted to
economically penalize the companies who had applied to the old
program.
MR. MYERS then turned the committee's attention to photographs
of naturally occurring oil and gas seeps on the Alaska Peninsula
within the potential lease sale area. He said that this is an
area where [the state] could see a significant positive economic
impact.
12:55:43 PM
MR. MYERS, responding to a question from Representative Gatto,
said that he did not know if the Environmental Protection Agency
(EPA) would require a natural oil seep to be cleaned up if it
was on a job site.
REPRESENTATIVE GATTO remarked that any substitute for natural
gas will be more expensive, and if natural gas was not available
to a community, it would have to convert to an alternative fuel
source. He said:
That conversion itself could be worth $5,000 to
$10,000. Most of us, therefore, would probably
consider it similar to ... [paying] a tax of $5,000 to
$10,000. ... A lot of people would be willing to do it
when you consider the alternative of a new oil
furnace, new flues, new things, and a product that is
less-friendly. This is an enormous part of the
equation that, if we do not have gas for residents and
the community, we suffer from the increase cost plus
the conversion.
REPRESENTATIVE ROKEBERG commented that the Cook Inlet area uses
natural gas; since there is so much coal in that area, coal
could be used as the primary electrical power generation source
and offset that as the alternate fuel source.
12:58:19 PM
MR. MYERS discussed House Bill 531, regarding coalbed methane,
that the legislature passed last year. He stated that he is very
proud of the standards the bill established, and said, "I
thought we hit truly the right balance." He reviewed some of
the environmental standards; strong water protection, noise
standards, light shielding, erosion control, and abandonment
procedures.
REPRESENTATIVE GATTO pointed out that the French generate about
70 percent of their power using nuclear power. He inquired as
to whether they made a good choice.
REPRESENTATIVE ROKEBERG stated that nuclear is back into play
due to necessity and the inability of hydrocarbons to meet that
growth. He said that the primary growth in the United States is
going to be coal.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Oil and Gas meeting was adjourned at
1:07:21 PM.
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