Legislature(1995 - 1996)
01/31/1995 10:03 AM O&G
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON OIL & GAS January 31, 1995 10:03 a.m. MEMBERS PRESENT Representative Norman Rokeberg, Chairman Representative Scott Ogan, Vice Chair Representative Gary Davis Representative Bill Williams Representative Tom Brice Representative Bettye Davis Representative David Finkelstein MEMBERS ABSENT None COMMITTEE CALENDAR HJR 7:Opposing the ban on the export of Alaska North Slope crude oil; endorsing federal legislation to remove restraints on the export of Alaska North Slope oil; requesting the Congress of the United States to pass legislation to permit the export of Alaska North Slope crude oil; and urging the President of the United States to support the legislation to lift the ban on the export of Alaska North Slope crude oil. PASSED OUT OF COMMITTEE HJR 19:Supporting the lifting of the ban on the export of Alaska North Slope crude oil; requesting the President of the United States to present to the United States Congress a recommendation that it is both in the national interest to lift the ban on the export of Alaska North Slope crude oil and discriminatory to the state to maintain the ban, and endorsing passage of H.R. 70 and S. 70, companion federal legislation to remove restraints on export of that oil. REMOVED FROM AGENDA WITNESS REGISTER: KEITH BURKE The Alliance-General Manager 4220 B St., Suite 200 Anchorage, AK 99513 Telephone: (907) 563-2226 POSITION STATEMENT: Supported CS HJR 7 and urged rapid passage JIM PALMER, Director External Affairs BP-Alaska 7154 Lowell Circle Anchorage, AK 99502 Telephone: (907) 243-7464 POSITION STATEMENT: Supported HJR 7 CHUCK LOGSDON, Chief Petroleum Economist Department of Revenue 550 W. 7th Ave, Suite 750 Anchorage, AK 99501 Telephone: (907) 277-5627 POSITION STATEMENT: Supported HJR 7, and the removal of the export ban BEVERLY WARD, Director Government Relations ARCO Alaska, Inc. 134 N. Franklin St. Juneau, Alaska 99801 Telephone: (907) 586-3680 POSITION STATEMENT: Provided written statement in support of HJR 7 PREVIOUS ACTION: BILL: HJR 7 SHORT TITLE: EXPORT OF ALASKA OIL SPONSOR(S): REPRESENTATIVE(S) FINKELSTEIN, Rokeberg, Navarre, Grussendorf, Brown, B.Davis, Porter, Davies, Kubina JRN-DATE JRN-PG ACTION 01/16/95 17 (H) READ THE FIRST TIME - REFERRAL(S) 01/16/95 17 (H) O&G, RES, FIN 01/18/95 73 (H) COSPONSOR(S): DAVIES 01/19/95 86 (H) COSPONSOR(S): KUBINA 01/31/95 (H) O&G AT 10:00 AM CAPITOL 124 BILL: HJR 19 SHORT TITLE: EXPORT OF ALASKA OIL SPONSOR(S): SPECIAL COMMITTEE ON OIL AND GAS JRN-DATE JRN-PG ACTION 01/20/95 100 (H) READ THE FIRST TIME - REFERRAL(S) 01/20/95 100 (H) O&G, FIN 01/31/95 (H) O&G AT 10:00 AM CAPITOL 124 ACTION NARRATIVE TAPE 95-2, SIDE A Number 000 The House Special Committee on Oil & Gas was called to order by CHAIRMAN NORMAN ROKEBERG at 10:03 a.m. Members present at the call to order were Representative(s) Rokeberg, Brice, G. Davis, Finkelstein, Ogan and Williams. Members absent were Representative B. Davis. CHAIRMAN ROKEBERG stated there is a quorum present. He then announced that the meeting was on teleconference with Anchorage and Valdez. HO&G - 01/31/95 HJR 7 - EXPORT OF ALASKA OIL Number 029 CHAIRMAN ROKEBERG asked Representative Ogan if he would move to adopt a Committee Substitute for HJR 7. Representative Ogan so moved. Committee Substitute for HJR 7(O&G) is now before the committee for discussion. Number 044 CHAIRMAN ROKEBERG declared that public testimony was now open. The Chairman then asked if the sponsor of HJR 7 would like to make any statements. Number 055 REPRESENTATIVE DAVID FINKELSTEIN stated this issue has been a point of controversy for several years. There is a new interest for this issue in the Congress of the United States and the Federal Administration. He said with this new interest he believed that we have a unique opportunity to change this law. The increased position of Alaska's Congressional delegation helps to strengthen our position as well. He mentioned there have been several new studies conducted on this issue and they have been favorable to our position. All of these factors provide us a very favorable position from which to lift the ban of Alaska North Slope crude oil. Number 076 CHAIRMAN ROKEBERG thanked Representative Finkelstein for his comments and noted that Representative Bettye Davis joined the committee at 10:07 a.m. Chairman Rokeberg then asked if there was any testimony from Anchorage via teleconference. Number 090 KEITH BURKE, General Manager of "The Alliance," testified via teleconference and stated that Alaska needs to continue to move forward on development and improve the economics of marginal fields in Alaska. He said this resolution is an important piece of that puzzle and I encourage you to pass this resolution and send it on to the Congress of the United States so that Alaska can become more competitive in a global market. I applaud you for the position that you are taking on this issue and I support you completely. CHAIRMAN ROKEBERG thanked Mr. Burke for his statement and called for testimony from Jim Palmer. Number 107 JIM PALMER, Director of External Affairs, BP-Alaska, thanked Chairman Rokeberg for the opportunity to testify via teleconference. Mr. Palmer indicated that he had prepared written remarks that he would not read due to the time constraint, but he wished them to be included in the record. Mr. Palmer stated the removal of the export ban on Alaskan North Slope crude oil is extremely important to the future of the oil industry in Alaska. He stated he was very pleased that the issue has moved to the point that it is currently at, and there is a very real chance that the export ban will be lifted. Mr. Palmer then stated he believes that the Clinton Administration is looking very favorably towards removal of the ban, and that the current position of Alaska's Congressional delegation can be of great help. Mr. Palmer then stated he would be available to answer any questions that the members of the committee may have. The following statement by BP Alaska was submitted by Mr. Palmer for the record: Good morning, Mr. Chairman and members of the House Oil and Gas Committee. My name is Linda Adamany and on behalf of BP, I am pleased to provide the following testimony to the Alaska State Legislature. This testimony discusses the future of oil production on Alaska's North Slope, and how artificial federal constraints, such as the ban on its export, affect our ability to market it efficiently. The history of Alaska North Slope oil production is one of remarkable achievement. In the past two decades, the oil industry has invested more than $50 billion (in today's money terms) in realizing the Alaska North Slope's hydrocarbon potential. We've nearly doubled the volume of oil we expect to recover from the region through a combination of technological advances and massive capital investment. In 1977, we expected to recover less than 10 billion barrels of oil from a single Alaska North Slope field. Today we're producing oil from a number of fields surrounding Prudhoe Bay. The industry has just produced our 10 billionth barrel of oil, yet we have a similar amount in booked and likely reserves. We postponed Prudhoe's inevitable decline by nearly four years, and today based on the State of Alaska's own forecasts, the North Slope is producing some 600,000 barrels more per day than were projected less than a decade ago. These achievements are particularly remarkable given the competitive disadvantages of Alaska's North Slope -- disadvantages stemming primarily from harsh climatic conditions, remoteness, and federal restrictions on access to world crude oil markets imposed by the ANS export ban. But today, the future of this critical domestic resource is in double jeopardy. Production is in decline, and margins that are the lifeblood of the ongoing investments that sustain production are being squeezed as never before by upward pressure on Alaska North Slope costs. BP, along with our industry partners, have been at the forefront of the industry in doing everything we can to enable Alaska North Slope oil to compete effectively for investment capital in a fiercely competitive world oil market. We've left no stone unturned in searching for new ways to do more for less, and we've stemmed the tide of soaring costs in the late `80s and `90s. We've completely retooled our relationships with contracts and field partners. We've reduced our staff levels and overhauled the way we do business within BP. These efforts have reduced our operating costs and enabled us to actually reduce per barrel operating costs in an atmosphere of declining production without sacrificing safety or our environmental performance. Because of Alaska's high field development costs, as well as restricted access to world crude oil markets, netbacks on Alaska North Slope production are disproportionately low vis-a-vis those of lower-cost hydrocarbon areas of the world that have unrestricted access to crude oil markets. Much of the Alaska North Slope production we currently project for the year 2000 depends on investments yet to be made. More than ever before, the environment dictates that investments be directed to areas offering the highest margins at the lowest risks. With the end of the Cold War and so much of the world now competing for energy investment, returns on those investments have become the prime consideration as companies allocate increasingly scarce capital resources. The competitiveness of these investments is crucial not only to BP and the Alaskan oil industry. Many of the individual states also hold large stakes in the health of the domestic industry. Those with significant oil production, like Alaska and California, realize substantial tax and royalty revenues. They also benefit from a significant number of jobs both directly and indirectly linked to oil industry investment. Much has been said and written about the hydrocarbon potential of Alaska's North Slope. There's a general consensus that the potential significantly exceeds reserves already produced of both existing and potential resources and remove cash from the system, making investments more difficult even in potentially profitable opportunities. It is important to understand that noncompetitive margins have two effects. First, they reduce production of both existing and potential resources and remove cash from the system, making investments more difficult even in potentially profitable opportunities. It's no longer enough that BP and the rest of the industry, through hard work and innovation, are reducing our costs. In order to maintain the competitiveness of Alaskan investments, it's critical that everyone with a stake in the future of the Alaskan oil industry does his and her part to help ensure its long-term health. Federal restrictions on our ability to market Alaska North Slope oil where it will generate the highest possible returns hurt producers and the State of Alaska by reducing netbacks on North Slope oil. These restrictions are costly and an unnecessary burden on our ability to compete. Lifting these restrictions will help to restore Alaska's competitiveness for future investment by boosting the wellhead value of ANS crude. The world has changed dramatically from the days when export restrictions on ANS crude were first imposed...days of real and perceived supply shortages and an energy crisis mentally. Today, with open markets, improved trade flows, access to new oil and gas provinces and significant discoveries throughout the world, the supply-demand balance has reversed itself. Restrictions on ANS exports that were based on fears of supply shortages are no longer appropriate. But failure to maintain investment because of loss of competitiveness will not help. Removing the restrictions and providing incentives will maximize domestic production if supply crises should occur in the future. BP and the Alaskan oil industry will continue to do our part by doing all we can to make Alaska North Slope investments competitive. But we can no longer do it alone. By directly or indirectly relieving the burden of unnecessary restrictions on our ability to compete, the federal government will not only demonstrate its commitment to do its part to enhance the competitiveness of Alaska North Slope oil, but also to help ensure the long-term health of this critical domestic resource. BP strongly encourages the State of Alaska to support lifting the ANS export ban. Thank you for this opportunity to address these important issues. Number 134 CHAIRMAN ROKEBERG thanked Mr. Palmer and called upon Chuck Logsdon to provide the committee with his testimony. Number 140 CHUCK LOGSDON, Chief Petroleum Economist, Department of Revenue, testified via teleconference and stated he would like to strongly endorse the resolution urging that the export ban on Alaska North Slope crude oil be lifted. He stated that lifting the ban would not only reduce the cost of marketing Alaska North Slope crude, it will also increase the sales price as well, and both of these will greatly increase the value of the resource. Mr. Logsdon stated this higher value will not only directly increase the state's oil revenues but it will also make investment in Alaska's oil industry more attractive to members of the oil companies themselves. Mr. Logsdon then stated he would be available to answer any questions the committee may have about the technical aspects of the oil industry. Number 154 CHAIRMAN ROKEBERG asked Mr. Logsdon for his comments on the $700 million to $1.6 billion of potential increases to state revenues, and there is a fiscal note which shows an impact of about $80 million in fiscal year 1996. Number 167 MR. LOGSDON, in response to Chairman Rokeberg's question stated the difference between the price that we are getting for the oil on the Gulf Coast and the West Coast is due to the fact that there has been an artificial surplus generated by the installation of the oil export ban. Mr. Logsdon commented that as production has come down to the current level of 1.6 million barrels per day in January, and demand increases on the West Coast, our oil does become more attractive to the buyers and we are getting a better price for it. Mr. Logsdon further stated there is still a modest discount between the two markets which will no longer exist if the oil export ban is lifted. Mr. Logsdon said if the oil export ban is lifted, the state should pick up between $50 million and $55 million in additional revenue due to higher realization for our West Coast sales. The other impact this would have would be on the cost of transportation. Mr. Logsdon stated the cost of shipping oil to destinations in Japan or Korea was far less than shipping it to the West Coast. Number 232 CHAIRMAN ROKEBERG asked Mr. Logsdon if he was familiar with the U.S. Department of Energy study that was published in June of 1994 noting that the numbers provided by Mr. Logsdon were more conservative than those given in the report. CHAIRMAN ROKEBERG then asked if there were any questions from the committee. Hearing none, he thanked Mr. Logsdon for his testimony and called for other witnesses. Number 251 REPRESENTATIVE TOM BRICE asked to pose a few questions to the sponsor of the bill if there were no more witnesses to be heard. Number 255 CHAIRMAN ROKEBERG then stated he would like to read into the record a statement prepared by Beverly Ward, Director of Government Relations, ARCO Alaska, Inc. Chairman Rokeberg explained that Ms. Ward was unable to attend due to another commitment. The following letter read was submitted for the record: Mr. Chairman, members of the House Oil and Gas Committee, my name is Beverly Ward. Thank you for the opportunity today to add ARCO's voice to the chorus of those asking that the oil export ban be lifted. Prior to the 1994 election, we judged passage of legislation lifting the export ban unlikely. It now appears passage is possible. ARCO will not benefit from elimination of the export ban. But because of the potential benefit to the state -- and at the request of the Knowles Administration -- we reevaluated our long standing neutral position on this issue and decided the time had come to join the state in working to open Pacific Rim markets to Alaska oil. We will make clear to members of Congress our support for legislation elimination the export ban. We will also work closely with the Alaska Congressional delegation, the legislature and the Knowles Administration on this issue in whatever way appropriate. We applaud your efforts through HJR 7 and HJR 19 to lift the oil export ban. Number 283 CHAIRMAN ROKEBERG noted the change of position by ARCO and the importance of this statement. Chairman Rokeberg asked for any further public testimony. Hearing none, Chairman Rokeberg closed public testimony on HJR 7. Chairman Rokeberg then called for further discussion by the committee. REPRESENTATIVE BRICE asked for a comparison between the Committee Substitute and the original resolution. Number 295 CHAIRMAN ROKEBERG stated that most of the changes in the original resolution are updated statistics. Number 300 REPRESENTATIVE BRICE then asked Chairman Rokeberg if he had the Committee Substitute introduced and not the sponsor. Number 302 CHAIRMAN ROKEBERG stated that Representative Brice was correct. Number 307 REPRESENTATIVE BRICE then asked Chairman Rokeberg to explain the process by which an Executive Order can extend the sunset date on a statute, and questioned the reference in statute, citing the Export Administration Act of 1979, as well as the Tax Authorization Act. He also stated from his understanding of the first WHEREAS, the President of the United States is the one who is currently banning the export of North Slope oil. Representative Brice then asked Chairman Rokeberg who was really banning the export of North Slope oil, and stated he thought there were some inconsistencies in the legislation. Representative Brice then pointed out in the first WHEREAS on Page 1, Line 8, that "the President of the United States has by Executive Order, continued the ban on the export of Alaska North Slope crude oil contained in 50 U.S.C.S. Appx. 2406(d) (sec. 7(d) Export Administration Act of 1079) that prohibits, with tightly restrictive exceptions, the export of domestically produced oil transported by pipeline over the right-of-way granted by 43 U.S.C. 1652 (sec. 203 of the Trans-Alaska Pipeline Authorization Act); and asked Chairman Rokeberg if the President of the United States by Executive Order is banning the export of North Slope crude oil, or is it the statutes that ban the export of North Slope crude oil. Number 339 CHAIRMAN ROKEBERG suggested that the sponsor of the bill could answer these questions, stating that the first WHEREAS is the same as the sponsor's. Number 341 REPRESENTATIVE FINKELSTEIN thanked Chairman Rokeberg and stated that in general, the Committee Substitute has a number of improvements. Representative Finkelstein then answered Representative Brices's question with reference to Executive Orders by stating that in certain areas like trade and national defense, Executive Orders can be equivalent to a law. He then stated there were two laws that kept the ban in place; one was the law that kept expiring each year, and the law that is in the Export Administration Act. Number 360 REPRESENTATIVE BRICE then asked if that was the law that gave the President the power by Executive Order to extend the ban. Number 364 REPRESENTATIVE FINKELSTEIN stated he did not know the answer to that question because he did not know if the power of Executive Orders came from that Act. He then stated he thought that the power of Executive Orders comes from much broader laws, that are unrelated to this, that give the President certain powers in the area of trade pre-existing any of this debate. CHAIRMAN ROKEBERG stated he believed the President of the United States has unilaterally extended the ban by Executive Order. He then stated this issue is what we are focusing on, but there was also some statutory language that built this up. Chairman Rokeberg then made a reference to the Trans-Alaska Pipeline Act. REPRESENTATIVE BRICE stated he would look into where the President receives the power of Executive Order. Number 386 CHAIRMAN ROKEBERG called for other comments or testimony of the issue at hand, noting that Representative Brice wanted to examine some of the comparative differentials between the Committee Substitute and the original resolution. He then stated there was some input from the witnesses, and the U.S. Energy study from June 1994, trying to update some of the statistics. He stated in the sponsor's original bill, there were some outdated numbers, so we focused on changing those, as they related to the transportation costs. He then stated, from the study we used the first WHEREAS on Page 2, $2-$4 dollars per barrel on the transportation charge. The differential there is that as Mr. Logsdon indicated he was using $1.60 right now which may explain some of the lower numbers, but the problem is that these are all speculative numbers. Chairman Rokeberg then stated they were trying to be straightforward and honest using the Energy Department numbers. Chairman Rokeberg stated the key number from Alaska's standpoint is that over a seven year period, Alaska gained $700 million-$1.6 billion in state taxes and royalties. At this time the committee meeting was interrupted when the building fire alarm sounded. It was quickly determined that there was no fire in the building and the meeting resumed. Number 428 CHAIRMAN ROKEBERG stated he thought the revenue projections to the state were very conservative, although the timing factor could come in to play, and he wished they would stay that way due to the fact that over the coming seven years the revenue would help us close the gap. One of the major things of that study was the impact on the development of further marginal fields on the North Slope in that area, that could generate additional lift in the job market not only in Alaska , but in the entire United States. He then stated the fundamental economic theory is that the greater amount of profit that can be generated by the lift of the ban, the more money the industry will have to put back into investment in the field and development, even marginal fields. Number 456 REPRESENTATIVE BRICE mentioned that it seems that once you remove the ban you are taking off a tax. Number 458 CHAIRMAN ROKEBERG stated the energy department's reserve additions could be between 200 and 400 million barrels and that is an economic result of greater investment. He stated there is also a change in the delivery transportation prices from $2-$4 down to $2.70. He stated the primary differences here are a result of the use of American labor and American shipping to transport the oil to the Pacific Rim. He stated this has the result of raising the cost and lowering the wellhead price so that we don't get as much benefit as we would have gotten otherwise. It is, however, politically expedient to do this and I believe that we will get support from labor groups, such as the United Auto Workers, who have historically been opposed to lifting the ban. This is due to the major impact on the balance of payments, and the decrease in the trade deficit that this would help bring about. The auto workers are worried that this would allow the U.S. to import more Japanese automobiles. The Chairman asked if Representative Brice had any further questions. Hearing none, he called for further discussion. Number 490 REPRESENTATIVE FINKELSTEIN offered two amendments to the resolution. Amendment 1: Page 2, Line 12, delete "reinvested" and insert "will be available for reinvestment". Representative Finkelstein stated these amendments were designed to make the language more understandable. He then stated with regard to the amendment that, we can't say for certain that money saved on transportation costs will be reinvested in domestic exploration, this is because they are a private company and we can't control what they do. He then stated this will be money that will be available for reinvestment. Number 508 CHAIRMAN ROKEBERG stated that he understood the point being made by Representative Finkelstein and asked if there was any further discussion of this topic. The Chairman then took a brief at-ease. When Chairman Rokeberg resumed the meeting he asked if Representative Finkelstein would like to move to vote on the first amendment to HJR 7. Number 511 REPRESENTATIVE FINKELSTEIN so moved the first amendment. Number 514 CHAIRMAN ROKEBERG, hearing no objection, so ordered the motion and the first amendment was adopted. Number 520 REPRESENTATIVE FINKELSTEIN asked to correct his second amendment. The amendment was handwritten and there were two mistakes. First he pointed out that on the third line down, the word `available' came up twice, and he asked to delete one of them. The second correction on that line, change the word `discovery' to `development'. After the corrections were made the amendment read: Page 2, Line 16, delete "reserve additions in Alaska alone could be as large as" and insert "the additional capital available could lead to the development of up to an additional". The explanation of the amendment is that, in the WHEREAS there are some technical terms that he was not aware of. He stated that people who are aware of economic theory of oil would understand the concept of reserve additions so he was trying to say the same thing in a way that would make sense. The reserve addition is the theoretical value of having additional capital available, and what this would mean in terms of additional areas that could be found because this capital is available to look for it is a very complex thought and he wanted to make it easier to understand. Number 542 CHAIRMAN ROKEBERG asked if Mr. Logsdon if he had any comments. Number 548 MR. LOGSDON said the theory that Representative Finkelstein put forth is correct. Number 560 REPRESENTATIVE FINKELSTEIN stated he was not trying to add or take away from the theory, but his intent was just to clarify the meaning. Number 566 CHAIRMAN ROKEBERG stated he appreciated the efforts of Representative Finkelstein, but he had no problem understanding the original draft and invited other comments. Number 570 REPRESENTATIVE FINKELSTEIN stated that reserve additions is a concept that isn't self-explanatory, and that it is just a theory. Number 574 CHAIRMAN ROKEBERG stated his appreciation for Representative Finkelstein's concerns, and said the language cites the energy study that it comes from in case there is a question. Number 580 REPRESENTATIVE GARY DAVIS stated because it cites the study is the most valid reason for leaving the language the way it is, then he stated he agrees with Representative Finkelstein stating that we should make these understandable as much as possible; however, when you cite statutes, you can't always use everyday language. Number 590 REPRESENTATIVE FINKELSTEIN stated the reason that he is concerned is that he wants the 500 members of Congress to be able to understand the language being used. He then stated if the audience is not ourselves then the language should be self-explanatory. Number 600 REPRESENTATIVE BRICE stated he tends to agree with Representative Finkelstein and stated that our main objective should be clarity with an issue like this one. CHAIRMAN ROKEBERG asked if there were any further comments on this issue. He then took a moment to review the material once again. Number 635 CHAIRMAN ROKEBERG called the committee to order and asked if there was any further discussion. Hearing none, the Chairman called for a vote on the second amendment. Number 638 The vote on amendment number 2 was recorded as follows: YES: Representative(s) BRICE, B. DAVIS, FINKELSTEIN, NO: Representative(s) ROKEBERG, G. DAVIS, OGAN, WILLIAMS The amendment was defeated by a vote of 4 to 3. CHAIRMAN ROKEBERG asked for any other points of discussion or amendments. Hearing none, he stated that he would entertain a motion to move CS HJR 7 as amended from the committee with individual recommendations Number 655 Representative Gary Davis so moved. Chairman Rokeberg asked if there was an objection. Hearing none, it was so ordered. HO&G - 01/31/95 HJR 19 - EXPORT OF ALASKA OIL Number 658 CHAIRMAN ROKEBERG declared that HJR 19 is now before the committee. The Chairman then stated that the language of the resolution has been incorporated into the resolution previously before the committee, therefore consideration of HJR 19 is not necessary, and HJR 19 is removed from the agenda. Number 663 CHAIRMAN ROKEBERG stated the next order of business is the selection of a Vice Chair and nominated Representative Ogan. Hearing no objections, it was so ordered. ADJOURNMENT Number 665 CHAIRMAN ROKEBERG adjourned the meeting at 10: 46 a.m.