Legislature(1993 - 1994)

04/07/1993 05:00 PM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
              HOUSE SPECIAL COMMITTEE ON OIL & GAS                             
                          April 7, 1993                                        
                            5:00 p.m.                                          
  MEMBERS PRESENT                                                              
  Representative Joe Green, Chairman                                           
  Representative Pete Kott, Vice-Chairman                                      
  Representative Jerry Sanders                                                 
  MEMBERS ABSENT                                                               
  Representative Jerry Mackie                                                  
  Representative Joe Sitton                                                    
  Representative Harley Olberg                                                 
  Representative Gary Davis                                                    
  OTHER HOUSE MEMBERS PRESENT                                                  
  Representative David Finkelstein                                             
  COMMITTEE CALENDAR                                                           
  *HJR 35   Endorsing approval by the United States Congress                   
            of S 254 or comparable legislation imposing a fee                  
            on imported oil.                                                   
            HEARD AND HELD IN COMMITTEE FOR FURTHER                            
  *HCR 12   Relating to the use of natural gas as a motor                      
            vehicle fuel in Alaska.                                            
            HEARD AND HELD IN COMMITTEE FOR FURTHER                            
  HB 199    "An Act providing for oil and gas exploration                      
            licenses, and oil and gas leases, in certain areas                 
            of the state; and providing for an effective                       
            HEARD AND HELD IN COMMITTEE FOR FURTHER                            
  (* first public hearing)                                                     
  WITNESS REGISTER                                                             
  Michael Johnson, Legislative Aide                                            
    to Representative Joe Sitton                                               
  State Capitol                                                                
  Court Building, Room 609                                                     
  Juneau, Alaska  99801-1182                                                   
  Phone:  (907) 465-2327                                                       
  POSITION STATEMENT: Delivered sponsor statement on HJR 35                    
  Representative David Finkelstein                                             
  State Capitol                                                                
  Court Building, Room 612                                                     
  Juneau, Alaska  99801-1182                                                   
  Phone:  (907) 465-2435                                                       
  POSITION STATEMENT: Prime Sponsor of HCR 12                                  
  Bernie Karl                                                                  
  K & K                                                                        
  P. O. Box 10687                                                              
  Fairbanks, Alaska  99710                                                     
  Phone:    (907) 457-6880 - home                                              
            (907) 488-1409 - work                                              
  POSITION STATEMENT: Supported HCR 12 with amendments                         
  Grant Doyle                                                                  
  AG Midland                                                                   
  P. O. Box 80327                                                              
  Fairbanks, Alaska  99708                                                     
  Phone:    (907) 458-0385 - home                                              
            (907) 488-8883 - work                                              
  POSITION STATEMENT: Supported HCR 12 with amendments                         
  Mead Treadwell, Deputy Commissioner                                          
  Department of Environmental Conservation                                     
  410 Willoughby Avenue                                                        
  Juneau, Alaska  99801                                                        
  Phone:    (907) 465-5054                                                     
  POSITION STATEMENT: Supported HCR 12 with amendments                         
  Ron King, Air Pollution Safety                                               
  Department of Environmental Conservation                                     
  410 Willoughby, Suite 301                                                    
  Juneau, Alaska  99801-1795                                                   
  Phone:    (907) 465-5050                                                     
  POSITION STATEMENT: Provided information related to HCR 12                   
  Jeff Ottesen, Chief                                                          
  Right-of-Way and Environment                                                 
  Division of Engineering and Operations                                       
  Department of Transportation                                                 
  3132 Channel Drive                                                           
  Juneau, Alaska  99801-7898                                                   
  Phone:    (907) 465-2985                                                     
  POSITION STATEMENT: Answered questions related to HCR 12                     
  Sen K. Tan, Assistant Attorney General                                       
  General Civil Division                                                       
  Department of Law                                                            
  1031 W. 4th, Suite 200                                                       
  Anchorage, Alaska  99501                                                     
  Phone:    (907) 269-5100                                                     
  POSITION STATEMENT: Answered questions related to HB 199                     
  David Lappi, President                                                       
  Lapp Resources, Inc.                                                         
  4900 Sportsmen Drive                                                         
  Anchorage, Alaska  99515                                                     
  Phone:    (907) 248-5684                                                     
  POSITION STATEMENT: Commented on bonding requirements of                     
                      HB 199                                                   
  Jim Eason, Director                                                          
  Division of Oil & Gas                                                        
  Department of Natural Resources                                              
  P. O. Box 107034                                                             
  Anchorage, Alaska  99510-0734                                                
  Phone:    (907) 762-2547                                                     
  POSITION STATEMENT: Commented on HB 199                                      
  Bill Webb, General Manager                                                   
  Alaska Sport Industry Alliance                                               
  4220 B Street, Suite 200                                                     
  Anchorage, Alaska  99503                                                     
  Phone:    (907) 563-2226                                                     
  POSITION STATEMENT: Supported HB 199, but not the bonding                    
  Kevin Tabler                                                                 
  909 W. 9th Avenue                                                            
  Anchorage, Alaska  99501                                                     
  Phone:    (907) 276-7600                                                     
  POSITION STATEMENT: Supported open position on annual                        
  Richard Richmond                                                             
  (address not available)                                                      
  POSITION STATEMENT: Commented on bonding with regard to HB
  Pete Nelson, Land Manager                                                    
  2550 Denali Street                                                           
  Anchorage, Alaska  99503                                                     
  Phone:    (907) 278-9611                                                     
  SPONSOR STATEMENT:  Supported annual bond in the amount of                   
                      the annual work committment                              
  PREVIOUS ACTION                                                              
  BILL:  HJR 35                                                                
  SHORT TITLE:  URGE FEDERAL FEE ON IMPORTED OIL                               
  BILL VERSION:                                                                
  SPONSOR(S):   REPRESENTATIVE(S) SITTON,Davidson,Brice,                       
  TITLE: Endorsing approval by the United States Congress of                   
  S 254 or comparable legislation imposing a fee on imported                   
  JRN-DATE     JRN-PG               ACTION                                     
  03/17/93       683    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  03/17/93       683    (H)   OIL AND GAS, RESOURCES                           
  03/19/93       715    (H)   COSPONSOR(S):B.DAVIS,DAVIES,                     
  03/19/93       715    (H)   COSPONSOR(S):NORDLUND,                           
  03/19/93       715    (H)   COSPONSOR(S): BROWN                              
  03/22/93       738    (H)   COSPONSOR(S): HUDSON, MACLEAN                    
  04/06/93              (H)   O&G AT 05:00 PM CAPITOL 124                      
  04/07/93              (H)   O&G AT 05:00 PM CAPITOL 124                      
  BILL:  HCR 12                                                                
  BILL VERSION:                                                                
  SPONSOR(S):   REPRESENTATIVE(S) FINKELSTEIN                                  
  TITLE: Relating to the use of natural gas as a motor vehicle                 
  fuel in Alaska.                                                              
  JRN-DATE     JRN-PG               ACTION                                     
  03/01/93       485    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  03/01/93       485    (H)   O&G, RESOURCES, TRA, FINANCE                     
  04/06/93              (H)   O&G AT 05:00 PM CAPITOL 124                      
  04/07/93              (H)   O&G AT 05:00 PM CAPITOL 124                      
  BILL:  HB 199                                                                
  BILL VERSION:                                                                
  SPONSOR(S):   RULES BY REQUEST OF THE GOVERNOR                               
  TITLE: "An Act providing for oil and gas exploration                         
  licenses, and oil and gas leases, in certain areas of the                    
  state; and providing for an effective date."                                 
  JRN-DATE     JRN-PG               ACTION                                     
  03/05/93       549    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  03/05/93       549    (H)   OIL & GAS, RESOURCES, FINANCE                    
  03/05/93       549    (H)   -ZERO FISCAL NOTE  (REV)                         
  03/05/93       549    (H)   GOVERNOR'S TRANSMITTAL LETTER                    
  03/15/93              (H)   O&G AT 05:00 PM CAPITOL 124                      
  03/16/93              (H)   O&G AT 08:00 AM CAPITOL 124                      
  03/22/93              (H)   O&G AT 05:00 PM CAPITOL 124                      
  03/22/93              (H)   MINUTE(O&G)                                      
  03/25/93              (H)   O&G AT 05:00 PM CAPITOL 124                      
  03/31/93              (H)   O&G AT 05:00 PM CAPITOL 124                      
  04/06/93              (H)   MINUTE(O&G)                                      
  04/07/93              (H)   O&G AT 05:00 PM CAPITOL 124                      
  ACTION NARRATIVE                                                             
  TAPE 93-12, SIDE A                                                           
  Number 000                                                                   
  CHAIRMAN JOE GREEN called the meeting to order at 5:10 p.m.                  
  and noted only three members of the committee were present:                  
  Representatives Green, Sanders, and Kott, which did not                      
  constitute a quorum, but testimony would be taken.                           
  HJR 35:  URGE FEDERAL FEE ON IMPORTED OIL                                    
  Number 032                                                                   
  SITTON, PRIME SPONSOR OF HJR 35, testified on his behalf.                    
  He read a sponsor statement.  (A copy of the sponsor                         
  statement may be found in the House Special Committee on Oil                 
  and Gas Committee Room, Capitol Room 114, and after the                      
  adjournment of the second session of the 18th Alaska State                   
  Legislature, in the Legislative Reference Library.)  In                      
  summary, the statement said HJR 35 encourages Congress to                    
  approve federal senate 254, which imposes a fee on imported                  
  oil.  Senate 254 would set a price floor of $25 per barrel                   
  on crude oil entering the United States.  By making imported                 
  oil less attractive, this resolution would thereby reduce                    
  our dependence on foreign oil, help balance the trade                        
  deficit, promote energy conservation, and encourage                          
  development of the domestic industry in renewable and                        
  alternative fuels.                                                           
  Number 084                                                                   
  REPRESENTATIVE JERRY SANDERS asked if Representative                         
  Sitton's office had any communication with the Congressional                 
  MR. JOHNSON replied in the negative.                                         
  Number 100                                                                   
  VICE CHAIRMAN PETE KOTT referred the committee to Page 1,                    
  Line 13 of HJR 35 and suggested that the number "2000" would                 
  read more clearly if it is specified that it means years.                    
  Number 116                                                                   
  MR. JOHNSON said he could not speak for Representative                       
  Sitton, but felt there would be a problem with changing this                 
  Number 126                                                                   
  CHAIRMAN GREEN asked Mr. Johnson how he felt HJR 35 would                    
  affect the energy tax if it was imposed.                                     
  Number 138                                                                   
  MR. JOHNSON did not have an answer; however, he stated the                   
  price floor was part of the President's ideas concerning the                 
  energy tax.                                                                  
  Number 149                                                                   
  CHAIRMAN GREEN stated HJR 35 proposed a 35% increase over                    
  the current price, and asked if this would create a problem                  
  with homeowners in the Lower 48.                                             
  Number 163                                                                   
  MR. JOHNSON felt there might be some resistance in certain                   
  Number 177                                                                   
  CHAIRMAN GREEN stated since the committee did not have a                     
  quorum HJR 35 could not be passed out, and asked Mr. Johnson                 
  to get a response from the Congressional Delegation.                         
  Number 182                                                                   
  MR. JOHNSON agreed to comply.                                                
  HCR 12:  USE OF NATURAL GAS IN MOTOR VEHICLES                                
  Number 207                                                                   
  stated the idea of HCR 12 is to promote the use of natural                   
  gas to fuel vehicles in Alaska.  He felt this would help                     
  deal with air pollution problems.                                            
  Number 241                                                                   
  BERNIE KARL stated he was in favor of HCR 12, but was in                     
  hope of an amendment that would add propane.  He stated                      
  propane comes from California to Fairbanks and he did not                    
  feel this was necessary since we have the fuel here in                       
  Alaska.  He felt using propane would help the air pollution                  
  Number 310                                                                   
  VICE CHAIRMAN KOTT asked what it would cost for a pump price                 
  for using propane in Alaskan's vehicles.                                     
  MR. KARL said the total cost would be approximately $1.00                    
  per gallon.                                                                  
  Number 322                                                                   
  VICE CHAIRMAN KOTT asked if there were advantages of using                   
  propane over natural gas.                                                    
  Number 325                                                                   
  MR. KARL said propane has been used longer in vehicles than                  
  natural gas.  A disadvantage of propane is a fuel pump has                   
  to be put on the vehicle in cold climates, and with natural                  
  gas fuel pumps are not necessary.  He also stated that                       
  propane is more dangerous in accidents than natural gas,                     
  although it is safer than gasoline.  The advantage that                      
  propane has is that it is a liquid and it only has to have                   
  20 pounds of pressure on it so a small tank will hold the                    
  same amount as a fuel tank, and if the vehicle is run                        
  strictly on propane and not duel-fuel, it will run at the                    
  same gas mileage.  With natural gas there is about a 10%                     
  difference and you do not get the distance you do with                       
  Number 414                                                                   
  GRANT DOYLE said he supported HCR 12, but would like to see                  
  it amended to include propane.  Advantages of propane he                     
  mentioned were that it is safer than gasoline, and that                      
  vehicles run cleaner with propane so it would help with the                  
  air pollution problem.                                                       
  Number 452                                                                   
  ENVIRONMENTAL CONSERVATION (DEC), introduced Ron King,                       
  Mobile Sources Programer for the DEC, Jeff Ottesen with                      
  Department of Transportation (DOT), and Barbara Sheppard,                    
  Alternative Fuels Coordinator and stated they were here to                   
  answer any questions that the committee might have.                          
  MR. TREADWELL supported HCR 12 and suggested a few changes.                  
  He said the DEC and the DOT with support of many private                     
  sponsors held a major conference on compressed natural gas                   
  vehicles.  He said if HCR 12 passed, a task force would be                   
  put together to try to figure out a way to make the program                  
  work, including municipalities, gas utilities, and gasoline                  
  Number 500                                                                   
  MR. TREADWELL suggested that a lot more people be added to                   
  HCR 12 like the mayor of Fairbanks, Commissioner Campbell of                 
  the DOT, Mapco, Tesoro, Chevron, Phillips, Ray Lachem, mayor                 
  of the North Slope Borough, presidents of Ford, Chrysler,                    
  and G.M., along with other independent gasoline retailers.                   
  Number 550                                                                   
  RON KING, AIR POLLUTION SAFETY, DEC, showed a map of                         
  transmission lines, and where certain stations were located.                 
  He said there were stations at this time that could possibly                 
  be encouraged to shift to natural gas.                                       
  Number 588                                                                   
  MR. TREADWELL hoped to have the above-mentioned task force                   
  off the ground by spring of 1993.                                            
  CHAIRMAN GREEN asked if Mr. Treadwell envisioned this being                  
  useful in Alaska rather than a metropolitan area.                            
  Number 609                                                                   
  MR. TREADWELL felt if this fuel alternative was to prove up                  
  over time it could get the DEC out of the oil spill business                 
  and help clean things up.  It will have to be made to have                   
  it work so there is a supply where people are going to                       
  Number 632                                                                   
  VICE CHAIRMAN KOTT asked Representative Finkelstein if he                    
  would be willing to include propane in HCR 12.                               
  REPRESENTATIVE FINKELSTEIN said it was more a drafting                       
  question as to whether HCR 12 could include both, because of                 
  the way it is written.  Possibly a Fairbanks representative                  
  would introduce a propane resolution, he added.                              
  Number 647                                                                   
  CHAIRMAN GREEN's only concern with HCR 12 is being able to                   
  have filling stations in appropriate places.                                 
  REPRESENTATIVE FINKELSTEIN appreciated all the DEC's                         
  suggestions and said he would work to incorporate a new                      
  version of HCR 12.                                                           
  Number 653                                                                   
  VICE CHAIRMAN KOTT asked, since the DEC was coming up with a                 
  task force, that HCR 12 be pushed through rather quickly.                    
  Number 662                                                                   
  REPRESENTATIVE SANDERS asked if the retail price of natural                  
  gas would be approximately $.60 per gallon.                                  
  MR. KING said that the $.60 was the current estimate that he                 
  has been given.                                                              
  Number 665                                                                   
  REPRESENTATIVE SANDERS then asked Mr. Karl if the propane                    
  would be approximately $1.00 per gallon.                                     
  MR. KARL said he estimates $1.00, but as the volume                          
  increases the price would decrease.                                          
  Number 669                                                                   
  REPRESENTATIVE SANDERS asked if the price of natural gas                     
  would go down also.                                                          
  MR. KING said probably not.                                                  
  Number 671                                                                   
  REPRESENTATIVE SANDERS asked if one alternative is $.60 and                  
  one is $1.00, why push the $1.00 alternative.                                
  MR. KING said he did not think they could deliver natural                    
  gas for $.60 in Fairbanks.                                                   
  Number 676                                                                   
  MR. KARL said one of the major problems with liquified                       
  natural gas is to keep it liquified.  He said a reason for                   
  the higher expense is that the propane trucks go to Prudhoe                  
  Bay empty.  The price of propane currently in Fairbanks is                   
  $1.28, he added.                                                             
  TAPE 93-12, SIDE B                                                           
  Number 000                                                                   
  MR. KARL further stated that he could not think of anywhere                  
  in the state one could not go and buy propane.  He said 90%                  
  of Fairbanks' gas stations have propane.                                     
  Number 046                                                                   
  REPRESENTATIVE SANDERS asked if the price would get down to                  
  Number 051                                                                   
  MR. KARL said he could not guarantee that the price for                      
  propane would get down to $.60.                                              
  Number 061                                                                   
  REPRESENTATIVE SANDERS asked if he thought it might get down                 
  to $.60.                                                                     
  Number 062                                                                   
  MR. KARL felt that was a good possibility.  He said he knows                 
  there is a good possibility if the tax would give up their                   
  $.08 per gallon in road tax.                                                 
  Number 070                                                                   
  REPRESENTATIVE SANDERS said if the state was to give up                      
  their $.08 that would affect natural gas also.                               
  Number 073                                                                   
  MR. KARL wished he could say it would be $.50 or $.52, but                   
  in good conscience he felt it would be right at a $1.00 per                  
  Number 076                                                                   
  REPRESENTATIVE SANDERS asked if propane would be viable at                   
  $1.00 trying to compete with natural gas at $.60.                            
  Number 083                                                                   
  MR. KARL said it would be viable and is cheaper than people                  
  are paying for fuel in Fairbanks now.  He said natural gas                   
  would not be sold in Fairbanks for $.60.                                     
  Number 100                                                                   
  said Mr. Karl was correct, natural gas could not be sold in                  
  Fairbanks for $.60.  He stated the fuel itself is very                       
  inexpensive, it is the storing and cleaning of the natural                   
  gas that is expensive.                                                       
  Number 135                                                                   
  REPRESENTATIVE SANDERS asked if there was a difference in                    
  the price.                                                                   
  Number 140                                                                   
  MR. OTTESEN said in the Fairbanks situation you would be                     
  looking at equivalent costs to propane, but he felt two                      
  alternative products would not be as strong as just one.                     
  Number 150                                                                   
  REPRESENTATIVE SANDERS asked if it would be better to push                   
  just one over the other.                                                     
  Number 153                                                                   
  MR. OTTESEN thought it would be easier for the public to                     
  understand that there is a single choice and it is available                 
  Number 173                                                                   
  REPRESENTATIVE SANDERS said he is not arguing with the                       
  concept or picking either alternative, but he felt pushing                   
  two things at one time would not be as beneficial as one                     
  Number 183                                                                   
  MR. OTTESEN said when the DOT was looking at both propane                    
  and natural gas they chose natural gas over propane because                  
  there are problems with propane in cold weather.  There are                  
  also problems with natural gas, like distribution and                        
  storage problems, but it is cheaper.                                         
  HB 199:  OIL & GAS EXPLORATION LICENSES/LEASES                               
  Number 203                                                                   
  CHAIRMAN GREEN said that testimony on HB 199 would be taken                  
  up at this time in reference to the bonding situation.                       
  Number 225                                                                   
  DEPARTMENT OF LAW, said he was available to answer any                       
  Number 237                                                                   
  DAVID LAPPI, PRESIDENT OF LAPP RESOURCES, INC., made four                    
  points in reference to HB 199, as follows:  1) he thought a                  
  dangerous precedent was being set by requiring bonding of                    
  limited entry users of the state's resources; 2) it would be                 
  difficult for small companies to obtain bonds; 3) the higher                 
  up front costs to make the entrepreneurial activity                          
  extremely difficult for small companies; and, 4) if the                      
  fiscal gap is to be funded with increased production                         
  revenues and royalties in the state - explorers around the                   
  world need terms on exploration licenses that are at least                   
  as attractive as terms that can be obtained in overseas                      
  Number 272                                                                   
  CHAIRMAN GREEN asked Mr. Lappi if there was not bonding if                   
  he had a suggestion as to how to handle this problem.                        
  Number 284                                                                   
  MR. LAPPI felt there were alternatives to be used in place                   
  of bonding.  He further stated that insurance and regular                    
  inspections of operations is very important in countries                     
  where they have major problems with prior practice.  If                      
  environmental regulations were lax or not in force at the                    
  time those operations were being carried out, but the                        
  situation in Alaska with full regulations and enforcement                    
  would preclude a lot of these problems.                                      
  Number 297                                                                   
  NATURAL RESOURCES, referred to Mr. Lappi's comments and                      
  stated the bonding provisions that are included in HB 199                    
  are not intended for environmental purposes.  He could not                   
  think of any instance in which someone is given the                          
  opportunity to explore without some cash, bonding,                           
  guarantee, or financial securities of some sort that give                    
  the host country some assurance that the proposed work                       
  commitment will be undertaken and completed.                                 
  Number 325                                                                   
  said the Alliance supported HB 199 for the most part, but                    
  felt the bonding was unnecessary as it is written.  He said                  
  the Alliance would support bonding of the annual program.                    
  Number 359                                                                   
  KEVIN TABLER with UNOCAL stated they support the open                        
  position on annual bonding.                                                  
  Number 370                                                                   
  CHAIRMAN GREEN put the situation in perspective by saying                    
  the committee has heard testimony from one extreme                           
  supporting bonding for the entire program to the other end                   
  of the spectrum saying no bonding or if so a percentage of                   
  the amount of work commitment that would be bid on an annual                 
  basis.  He stated the committee needed to bring these two                    
  extremes together if HB 199 would work and asked for input.                  
  Number 391                                                                   
  MR. EASON stated HB 199 is to encourage exploration, but                     
  encouraging serious participants.  In concept, all companies                 
  should have the same resources, intent, and ability to                       
  perform, but he said this is not the case.  He stated many                   
  times in the past there have been problems when you do not                   
  have financial security to back the performance that is                      
  promised to the state.  There are possible legal                             
  ramifications that arise if you set a standard so low it                     
  becomes inconsequential.  Litigation is likely to arise from                 
  several different perspectives.  First, one would be                         
  potential litigation from unsuccessful bidders, who have bid                 
  from a responsible position against bidders that turns out                   
  are not responsible and do not perform.  Secondly, in a                      
  situation where you have something as well defined as a work                 
  commitment, as opposed to a dollar amount, it makes it that                  
  much easier for disputes to arise between the licensee and                   
  the state over who has finished a work commitment and what                   
  exactly constitutes completion of a work commitment.                         
  Number 440                                                                   
  MR. TAN said the basic premise in the line is lifelong                       
  licensing.  Legislation as it is written right now, not only                 
  speaks to the bond, but other financial security.  Mr. Tan                   
  said if it is an open ended process, we are not protecting                   
  the interest of the state and would be in a position of                      
  future litigation.                                                           
  Number 469                                                                   
  MR. WEBB stated he does not see a major risk to the state,                   
  they undoubtedly are going to use qualified contractors here                 
  in Alaska.  The worst case scenario is nothing happens.  He                  
  stated a bond of $1 million certainly discourages small                      
  operators.  He stated there are other provisions in law, as                  
  far as environmental damage, that would take care of any                     
  environmental problems.                                                      
  Number 501                                                                   
  CHAIRMAN GREEN said if HB 199 would minimize the amount of                   
  commitment that an operator would be held to, either through                 
  a bond or some sort of security, and the state could get the                 
  land back but it may be several years down the road before                   
  the state could reoffer that and the intent is to get that                   
  drilled early.                                                               
  Number 522                                                                   
  MR. TAN said the program is to essentially offer                             
  opportunity.  During this period the State has given up the                  
  right to do anything with the land.  The concensus would be                  
  if there is a requirement to put up a bond for other                         
  financial increments then there is an incentive to move and                  
  get something done.  In the bid process, the commitment for                  
  the consideration for the contract is the work commitment.                   
  Number 546                                                                   
  MR. WEBB said he would suggest an annual bond, and if you do                 
  not perform you loose it at the end of one year.                             
  Number 574                                                                   
  MR. EASON said everyone is thinking what does or does not                    
  happen after a bid is selected.  What we have forgotten is                   
  that we have taken away any objective way of evaluating a                    
  bid, whether it is sealed or outcry, if it costs nothing,                    
  people bid $100 million, no matter how much money they have.                 
  With large companies sitting at the tables there would be no                 
  way for an administrator who is responsible for selecting                    
  the apparent high bidder in a situation to make an informed                  
  Number 616                                                                   
  REPRESENTATIVE SANDERS asked Mr. Richmond if there were                      
  other financial instruments available to the independent                     
  drillers that might protect the state's interest; anything                   
  besides bonds.                                                               
  Number 620                                                                   
  RICHARD RICHMOND said the major concern among all the people                 
  seems to be the availability of a bond.  He feels some                       
  security is necessary to guarantee performance of a                          
  contract.  He said there are other instruments that could be                 
  used, like irrevocable letters of credit, which are widely                   
  used in the rest of the world.  There is no insurance                        
  product that would guarantee performance.  The only product                  
  would be a bank guarantee or an individual type bond.                        
  Number 647                                                                   
  PETE NELSON, LAND MANAGER, TEXACO, said Texaco supports the                  
  AOGA's (Alaska Oil and Gas Association) position regarding                   
  the annual bond in the amount of the annual work commitment                  
  for that year with a provision that a bond would be                          
  forfeited if the work was not done in that one year.  She                    
  felt this fell in the middle of what the large oil companies                 
  want and the smaller companies and independents.                             
  Number 000                                                                   
  MR. EASON said a few things that raised a red flag when he                   
  read the AOGA's proposal was looking at things on an annual                  
  basis, but it is subject to potential litigation because of                  
  the fining problem.  It is very difficult to set up an RFP                   
  (request for proposal) to entertain and review proposals                     
  when you do not have the same schedule of events that are                    
  proposed to occur.  Another problem is most companies do not                 
  want the state in their business.  He stated an alternative                  
  he has would require less bonding or security up front, but                  
  it would also do some things that are very positive.  It                     
  would encourage earlier more intensive exploration and                       
  evaluation of the acreage.  It would leave a larger amount                   
  of money in the hands of the licensee to do that and at the                  
  same time it would incur some penalties if you did not.  It                  
  would also provide some cash return to the state in the                      
  event the licensee walks away during any point of that                       
  commitment period, short of the entire body of this                          
  MR. EASON faxed a copy of his formula to the committee at                    
  this time.  (A copy of this fax may be found in the House                    
  Special Committee on Oil and Gas Committee Room, Capitol                     
  Room 114, and after the adjournment of the second session of                 
  the 18th Alaska State Legislature, in the Legislative                        
  Reference Library.)                                                          
  Number 101                                                                   
  MR. EASON said the winning offer is for a five year work                     
  commitment of spending $50 million and the way this security                 
  provision would work is each year you would calculate the                    
  annual obligations that have to be posted by applying a                      
  formula.  The formula would consist of a numerator, it would                 
  have the total value of the work commitment you proposed                     
  minus the cumulative expenses that are incurred.  There                      
  would be a denominator that would consist of the number of                   
  years remaining in the program.  He further stated costs                     
  allowable for the expenses would be very limited and very                    
  direct measurable costs labor, benefits, rentals, and                        
  contract costs.  Overhead would be excluded, eliminate the                   
  costs of providing bonds.                                                    
  Number 186                                                                   
  CHAIRMAN GREEN asked Mr. Eason if before the Commissioner                    
  put out the bids as to what costs would be allowable, or                     
  would they be standard.                                                      
  MR. EASON said there would be a definition and he had a                      
  suggested one.  He suggested that the definition be put into                 
  HB 199.                                                                      
  Number 230                                                                   
  CHAIRMAN GREEN asked by using this method if it would limit                  
  licensing to major players.                                                  
  MR. EASON said for these size projects, this would be the                    
  kind of company that would need to do this.  It is an option                 
  for the company, either a very small company or a very large                 
  company, to have the exclusive right to explore the area and                 
  to convert it to leases.                                                     
  Number 270                                                                   
  MR. LAPPI said the way HB 199 is currently written there is                  
  no requirement of any company to explore or extend any money                 
  before the tenth year.  If the state is truly interested in                  
  promoting exploration and getting work done early on he said                 
  he felt this bill should then address this problem.  He said                 
  the state should not shy away from trying to produce wealth                  
  because a lawsuit may result.  The state needs to produce                    
  wealth and produce the wealth on the expectation that                        
  lawsuits may occur.                                                          
  Number 302                                                                   
  MR. RICHMOND did not realize HB 199 was written with a 10                    
  year obligation.  He said that would be impossible to get                    
  for any company, except for the very strong as far as a bond                 
  is concerned.  The maximum bond that any company would want                  
  to write in terms of time would not exceed three years at                    
  the very maximum.  He said speaking on the forfeiture type                   
  of bond, which in effect is a financial guarantee and for                    
  anyone, and again only the very strong company.                              
  Number 327                                                                   
  MR. EASON said other countries that have an easier way of                    
  dealing with this are not troubled by having to follow                       
  competitive procedures.  The simple solution to this would                   
  be to amend the statutes to allow the Commissioner to                        
  negotiate with any individual he wants to have a work                        
  commitment performed on state lands that he at his                           
  discretion is in the state's best interest.                                  
  Number 348                                                                   
  MR. WEBB said the state has land that nothing is happening                   
  on.  He did not feel there would be too much of a                            
  competitive situation.                                                       
  Number 388                                                                   
  MR. TABLER said he would like to have the opportunity to                     
  write comments on Mr. Eason's proposal after UNOCAL has the                  
  chance to review it.                                                         
  Number 399                                                                   
  CHAIRMAN GREEN adjourned meeting at 7:00 p.m.                                

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