Legislature(1995 - 1996)

03/15/1995 05:03 PM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                            
                         March 15, 1995                                        
                           5:03 p.m.                                           
                                                                               
                                                                               
 MEMBERS PRESENT                                                               
                                                                               
 Representative Norman Rokeberg, Chairman                                      
 Representative Bill Williams                                                  
 Representative Tom Brice                                                      
 Representative Gary Davis                                                     
 Representative David Finkelstein                                              
 Representative Bettye Davis                                                   
                                                                               
 MEMBERS ABSENT                                                                
                                                                               
 Representative Scott Ogan                                                     
                                                                               
 COMMITTEE CALENDAR                                                            
                                                                               
 HB 207:  "An Act relating to adjustments to royalty reserved to               
          the state to encourage otherwise uneconomic production of            
          oil and gas; relating to the depositing of royalties and             
          royalty sale proceeds in the Alaska permanent fund; and              
          providing for an effective date."                                    
                                                                               
      HEARD AND HELD                                                           
 HO&G - 3/15/95                                                                
 HB 209:  "An Act relating to the authority of the commissioner of             
          natural resources to allow reductions of royalty on oil              
          and gas leases; and providing for an effective date."                
                                                                               
          SCHEDULED BUT NOT HEARD                                              
 WITNESS REGISTER                                                              
                                                                               
 KEITH BURKE, General Manager                                                  
 Alaska Support Industry Alliance                                              
 421 B Street, Suite 200                                                       
 Anchorage, Alaska 99501                                                       
 Telephone:  (907) 563-2226                                                    
 POSITION STATEMENT:  Testified in favor of HB 207                             
                                                                               
 CARL PORTMAN, Communications Director                                         
 Resource Development Council for Alaska                                       
 121 W est Fireweed Lane                                                       
 Anchorage, Alaska 99503                                                       
 Telephone:  (907) 276-0700                                                    
 POSITION STATEMENT:  Testified in favor of HB 207                             
                                                                               
 PAUL WESSELLS, Director of Tax                                                
 BP Exploration (Alaska) Inc.                                                  
 P.O. Box 196612                                                               
 Anchorage, Alaska 99519-6612                                                  
 Telephone:  (907) 564-5585                                                    
 POSITION STATEMENT:  Testified in favor of HB 207                             
                                                                               
 JOHN PETERSON                                                                 
 Alaska Interstate Construction                                                
 649 West 54th                                                                 
 Anchorage, Alaska                                                             
 Telephone:  (907) 562-2792                                                    
 POSITION STATEMENT:  Testified in favor of HB 207                             
                                                                               
 KEN BOYD, Deputy Director                                                     
 Division of Oil and Gas                                                       
 Department of Natural Resources                                               
 3601 C Street, Suite 1380                                                     
 Anchorage, Alaska 99503-5948                                                  
 Telephone:  (907) 762-2547                                                    
 POSITION STATEMENT:  Answered questions on HB 207                             
                                                                               
 PREVIOUS ACTION                                                               
                                                                               
 BILL:  HB 207                                                               
 SHORT TITLE: ADJUSTMENTS TO OIL AND GAS ROYALTIES                             
 SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR                                  
                                                                               
 JRN-DATE     JRN-PG                  ACTION                                   
 02/27/95       501    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 02/27/95       501    (H)   OIL & GAS, RESOURCES, FINANCE                     
 02/27/95       501    (H)   FISCAL NOTE (DNR)                                 
 02/27/95       501    (H)   2 ZERO FISCAL NOTES (DNR, REV)                    
 02/27/95       501    (H)   GOVERNOR'S TRANSMITTAL LETTER                     
 03/08/95       665    (H)   CORRECTED FISCAL NOTE (DNR) #3                    
 03/09/95              (H)   O&G AT 12:00 PM CAPITOL 17                        
 03/09/95              (H)   MINUTE(O&G)                                       
 03/14/95              (H)   O&G AT 10:00 AM CAPITOL 124                       
 03/14/95              (H)   MINUTE(O&G)                                       
 03/15/95              (H)   O&G AT 05:00 PM BELTZ ROOM 211                    
                                                                               
 BILL:  HB 209                                                               
 SHORT TITLE: OIL & GAS ROYALTY REDUCTION                                      
 SPONSOR(S): REPRESENTATIVE(S) GREEN, Rokeberg                                 
                                                                               
 JRN-DATE     JRN-PG                  ACTION                                   
 02/27/95       503    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 02/27/95       503    (H)   OIL & GAS, RESOURCES, FINANCE                     
 03/01/95       551    (H)   COSPONSOR(S): ROKEBERG                            
 03/09/95              (H)   O&G AT 12:00 PM CAPITOL 17                        
 03/09/95              (H)   MINUTE(O&G)                                       
 03/14/95              (H)   O&G AT 10:00 AM CAPITOL 124                       
 03/14/95              (H)   MINUTE(O&G)                                       
 03/15/95              (H)   O&G AT 05:00 PM BELTZ ROOM 211                    
                                                                               
 ACTION NARRATIVE                                                              
 HO&G - 03/15/95                                                               
 TAPE 95-11, SIDE A                                                            
                                                                               
 HB 207 - ADJUSTMENTS TO OIL AND GAS ROYALTIES                               
                                                                               
 Number 000                                                                    
                                                                               
 CHAIRMAN NORMAN ROKEBERG:  ...4:03 and March 15th, 1995, and for              
 the record, committee members present at moment are Representative            
 Bill Williams, Representative Tom Brice and Chairman Norman                   
 Rokeberg.  We do not have a quorum, but we will proceed anyway.               
 The important nature of this testimony requires that we, and the              
 large number of people that wish to testify, we just do proceed.              
 Therefore, as the first witness today -- the chair takes note that            
 we have a quorum with Representative Gary Davis and Representative            
 David Finkelstein now in attendance.  We'd like to start on the               
 teleconference today with Mr. Keith Burke of the Alliance in                  
 Anchorage.  Keith, are you there?  Hello.  Anchorage, are you                 
 there?  Hello.  (Indisc.--problems with teleconference)  This, is             
 my bill, 207, and the problem is I've read it.                                
                                                                               
 UNKNOWN:  Oh, oh.  Now we are in trouble.                                     
                                                                               
 CHAIRMAN ROKEBERG:  Except, do I remember what I've read?                     
                                                                               
 UNKNOWN:  It's a relatively easy bill now, Norm.                              
                                                                               
 CHAIRMAN ROKEBERG:  Standing at ease right now.  Waiting for our              
 teleconference.  And for the record, Representative Bettye Davis is           
 now in attendance.  Paul, how long is your testimony going to be?             
                                                                               
 PAUL WESSELLS, DIRECTOR OF TAX, BP ALASKA:  (Indisc.) of the                  
 minutes.                                                                      
                                                                               
 Number 057                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  In light of, Keith Burke, are you, are you in             
 attendance, sir.                                                              
                                                                               
 KEITH BURKE, GENERAL MANAGER, ALASKA SUPPORT INDUSTRY ALLIANCE OF             
 ANCHORAGE (TELECONFERENCE):  Yes, I am.                                       
                                                                               
 CHAIRMAN ROKEBERG:  Well, Keith, we're waiting anxiously and would            
 you please state your name and affiliation and address for the                
 record?                                                                       
                                                                               
 MR. BURKE:  My name is Keith Burke.  I am general manager of the              
 Support Industry Alliance organization, and our business address is           
 421 B Street, Suite 200 here in Anchorage.  I'd like to                       
 (indisc.)...                                                                  
                                                                               
 Number 066                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Could you get closer to the mike, Keith?                  
 You're breaking up on us.                                                     
                                                                               
 MR. BURKE:  Okay, is that better?                                             
                                                                               
 CHAIRMAN ROKEBERG:  Yes, yes.                                                 
                                                                               
 MR. BURKE:  Okay.  I'd like to start off first of all with just a,            
 I believe you each have a copy of my testimony and I'll just go               
 ahead and read through that and get started.  I'd like to thank               
 Chairman Rokeberg for allowing me to speak here today and to the              
 members for their (indisc.) agenda.  I am the general manager of              
 the Alaska Support Industry Alliance.  I have been a participant in           
 Alaska's oil industry for the past 20 years.  I am here today to              
 represent The Alliance, myself and my family.  I am here to support           
 HB 207.                                                                       
                                                                               
 (problems with teleconference)                                                
                                                                               
 CHAIRMAN ROKEBERG:  Hello.                                                    
                                                                               
 MR. BURKE:  Yeah.                                                             
                                                                               
 (Teleconference people:  What happened?  -Getting some really bad             
 feedback from you.  -So are we, but I'm not sure why yet.)                    
                                                                               
 Number 087                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  This is Juneau talking.  Are people's ears in             
 order there? Anchorage, you on line?                                          
                                                                               
 ANCHORAGE TELECONFERENCE:  Yeah, we're on line.                               
                                                                               
 CHAIRMAN ROKEBERG:  Is, who else is on line teleconferencee?  Go              
 ahead, Keith.  Maybe we can give her another shot here.  Excuse us            
 for the technical breakdown.                                                  
                                                                               
 Number 092                                                                    
                                                                               
 MR. BURKE:  No problem.  I'll just start over where we're supposed            
 to begin.  I'm the general manager of the Support Industry                    
 alliance.  I have been a participant in Alaska's oil industry for             
 the past 20 years and I'm here today to represent the Alliance,               
 myself and my family.  I am here to encourage you to support HB
 207.                                                                          
                                                                               
 This legislation will be a great step forward in reversing the                
 downward trend in oil and gas exploration and development                     
 activities in Alaska.  It also would encourage continued investment           
 in development of alaska resources by many major multi-national oil           
 companies, the very companies who allow members of The Alliance to            
 provide many quality jobs to our Alaskan employees.                           
                                                                               
 Since 1990, four oil and gas companies have closed their offices              
 and have suspended operations in Alaska: Chevron, Conoco, Amoco,              
 and Texaco.                                                                   
                                                                               
 The downturn in labor, the labor force and lost jobs.  Oil and gas            
 companies have downsized and consolidated operations in an effort             
 to affect maximum cost savings to remain competitive.                         
                                                                               
 With the completion of GHX2, the last major construction project              
 currently planned on the North Slope, job levels are anticipated to           
 continue a slow and steady decline.                                           
                                                                               
 According to Neil Fried, Department of Labor, producers will                  
 probably experience a statewide decrease of 20 percent or more in             
 1995 over 1994.  Producer employment from February, 1994 to                   
 February, 1995 shows a decrease of 18 to 19 percent.  The combined            
 downturn factoring in support industry jobs, will provide, will               
 probably be around 10-11 percent.                                             
                                                                               
 Since its peak in 1991 of more than 10,541 jobs, industry                     
 employment has declined substantially and is predicted to be                  
 approximately 8,000 in 1995, about the same level of employment as            
 in 1987.  Attached to copies of my testimony is a graph from the              
 Department of Labor titled "Alaska's Oil Industry Employment is on            
 the Wane."                                                                    
                                                                               
 According to the University of Alaska, Institute of Social and                
 Economic Research, oil revenues provide 30 percent of Alaskan's               
 personal income and account for one in every three jobs.  As oil              
 production and revenues decline, so too will the number of Alaska             
 jobs supported by petroleum revenues.                                         
                                                                               
 Alaska Production/Revenue Decline:  Alaska's revenue future closely           
 tracks the continued depletion of petroleum reserves.  (Table 1.              
 (attached to my testimony) shows the Department of Revenue's Base             
 Case projected petroleum revenues as a percent of total projected             
 state restricted revenues.)                                                   
                                                                               
 Current forecast scenarios project total Alaskan oil production to            
 decline at an average annual rate of 6 percent Fiscal Year 95 to              
 Fiscal Year 2000, falling to one-half of current production levels            
 by 2006, in the base case scenario.  Although higher oil prices               
 would offset some of the negative impact of lower production                  
 levels, ultimately revenues will fall barring some unforeseen oil             
 discovery. (Table 2., attached,) shows current and projected oil              
 production through FY 2010.                                                   
                                                                               
 Half of the oil production projected for the year 2000 and beyond             
 depends on investments yet to be made.  This means the fiscal                 
 outlook could be worse than current projections unless the state              
 acts to ensure that the new investments implicit in the Department            
 of Revenue's projections are actually made.  If the industry is               
 forced to cut back on investment, we'll not only sacrifice                    
 significant future growth, but near-term production could plummet             
 as well.                                                                      
                                                                               
 Number 165                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Keith, excuse me, if you would.                           
                                                                               
 MR. BURKE:  Yeah.                                                             
                                                                               
 CHAIRMAN ROKEBERG:  We do have the written record you submitted               
 here for the committee.  Because of the large number of people who            
 want to testify I'd appreciate it if you could perhaps try to wrap            
 it up and let us know your final thoughts on this, and we really              
 appreciate your testimony.                                                    
                                                                               
 Number 169                                                                    
                                                                               
 MR. BURKE:  You betcha.  I'll do that, and I want to thank you.  It           
 is extremely critical that you all know as representatives for                
 people of Alaska that we (indisc.) industry, (indisc.) industry               
 that can provide the engine for (indisc.) and for Industry Alliance           
 of people of Alaska, but we encourage one of you to look through              
 the testimony, if you have any questions, please let me know and I            
 would encourage you each and every one of you to please vote for,             
 and in favor of House Bill 207.  Thank you very much.                         
                                                                               
 Number 178                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Thank you, Mr. Burke.  We appreciate that and             
 the support of the Alliance.  Next, we'd like to hear from Mr. Carl           
 Portman in Anchorage.                                                         
                                                                               
 Number 180                                                                    
                                                                               
 CARL PORTMAN, COMMUNICATIONS DIRECTOR, THE RESOURCE DEVELOPMENT               
 COUNCIL FOR ALASKA - ANCHORAGE (Teleconference).  On behalf of the            
 RDC, thank you for the opportunity to testify on HB 207.  RDC is a            
 proponent of the strong oil and gas industry and has worked for,              
 has worked in advance in subjects that encourage the industry to              
 explore for new oil fields in Alaska and to bring production, new             
 production into line.  Oil revenues, as you heard in the earlier              
 testimony, account for about 80 percent of the state revenues and             
 one in every three jobs in Alaska, and I saw oil production and               
 revenues decline.  So will a number of Alaska (indisc.)  We are               
 really concerned about this.  Current forecast scenarios indicate             
 Alaska's oil production will decline to about half the level by               
 2006 as was just reported.  And that could be worse.  If (indisc. -           
 sneezing) not being elective is at a competitive disadvantage in              
 attracting of capital investments because of high transportation,             
 exploration and development costs.  Long lead time include oil                
 characteristics that discount North Slope oil and occurs in other             
 crudes and it's state revenue pressure that takes a bigger share of           
 profits.  What Alaska needs is a strategy to counter these                    
 disadvantages to make Alaska more competitive in the world market             
 so that more dollars are invested here.  HB 207 is step in the                
 right direction.  Through a reduction in royalties this bill                  
 encourages otherwise uneconomic production from marginal fields and           
 prolong the production life of declining fields.  This is important           
 because much of Alaska's future production will be from marginal              
 fields.  There a number of undeveloped North Slope oil                        
 accumulations, many of which would be in production if they were              
 located in the Lower 48.  But, in Alaska high costs combined with             
 low volume(?) prices make them uneconomic.  HB 207, however, would            
 encourage the state and the industry to work together to change the           
 economic depression from marginal fields.  The passage of HB 207              
 allows stability to keep (indisc.) capital to improve as would the            
 prospects for enabling economy with steady, well paying jobs.  The            
 benefits to Alaska are obvious: new jobs, more production and long            
 term additions to the tax base for state and local property taxes.            
 HB 207 sends a clear signal to board rooms in London, Los Angeles             
 and Houston that Alaska means to be competitive in the world market           
 and attract the investments necessary to develop this oil and gas             
 potential.  It provides DNR with the flexibility needed in working            
 with investors (indisc. - static) statehood to make new development           
 a reality.  This bill will make a difference in attracting                    
 investment capital to Alaska instead of its going elsewhere.  HB
 207 will help get marginal fields into production, fields that                
 might otherwise go in half, or would be shut in without a royalty             
 reduction.  Without HB 207, there may be no revenue from these                
 fields.  RDC believes this bill provides adequate safeguards to               
 protect the states best interest.  HB 207 would require the lessee            
 to make clear and convincing case that a royalty reduction is                 
 necessary and its in the best interests of the state.  It also                
 provides (indisc.) change in the future the commissioner of DNR can           
 rate(?) the royalties that were previously reduced.  We encourage             
 you to pass HB 207.  Thank you for the opportunity to comment.                
                                                                               
 Number 193                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Thank you very much, Mr. Portman.  At this time           
 we will go to testimony in Juneau, and we'd like to invite Mr.                
 Wessells to present his testimony.  Please state your name and                
 (indisc.) and -- oh, very good --.                                            
                                                                               
 Number 234                                                                    
                                                                               
 PAUL WESSELLS, DIRECTOR OF TAX FOR BP EXPLORATION (ALASKA):  Good             
 afternoon, Mr. Chairman.  My name is Paul Wessells.  I'm director             
 of Tax for BP Exploration (Alaska).  I live in Anchorage, and thank           
 you for the opportunity to testify on behalf of BP regarding HB
 207.                                                                          
                                                                               
 BP supports House Bill 207 and encourages this legislature to enact           
 the bill.  This bill represents a very positive step along the road           
 to development of the state's marginal new oil fields, and marginal           
 projects within existing fields.  It is our belief that initiatives           
 such as HB 207 signal a new spirit of cooperation between the oil             
 industry and state government.  And it is a joint effort that will            
 be required for the state to fully realize the value of its oil and           
 gas resources.                                                                
                                                                               
 In what manner does HB 207 promote full development of the state's            
 resources?  First, it clarifies the existing statute by specifying            
 that new development, that is, properties that have never produced            
 oil and gas, may qualify for royalty reduction.  Second, the bill             
 provides that relief may be granted with respect to individual                
 leases, rather than solely as part of a unit application.                     
                                                                               
 The bill takes additional steps to protect the public interest by             
 assuring that the Commissioner of Natural Resources will receive              
 the financial and technical information necessary to allow a                  
 reasoned judgment on the merits of an application, and by requiring           
 that the cost of third party professional assistance to the                   
 Commissioner in analyzing the application be borne by the                     
 application.  In addition, the public interest is served by the               
 provision in the bill that the state may condition a reduction in             
 royalty on a readjustment at a later time if the circumstances                
 which supported the grant of the reduction change.                            
                                                                               
 It is this last aspect of the bill that makes it clear that it is             
 not just about reducing the royalty obligations of producers in the           
 absolute sense.  Indeed, it is entirely possible that a royalty               
 adjustment program negotiated by the state and a leaseholder will             
 lead to greater royalty payments over the full life of a property.            
                                                                               
 We in BP believe that HB 207 will make it possible for the state              
 and the oil industry to devise, through open sharing of information           
 and good faith negotiation, methods for sharing the risks of                  
 developing marginal properties. It is imperative that we capture              
 the potential of these properties to assure a strong and stable               
 industry and a strong and stable Alaskan economy.  That concludes             
 my prepared remarks, Mr. Chairman, but I would be happy to answer             
 an questions that you or the committee members may have.                      
                                                                               
 Number 271                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Well, thank you, Mr. Wessells.  I, just, in               
 listening to your testimony, you indicate there's a provision in              
 the bill that the state make additional reduction royalty or a                
 readjustment at a later time if circumstances change?  Would you,             
 with you interpretations would you direct me to that provision in             
 the bill?  Is that possible?  Is it the, the                                  
                                                                               
 Number 282                                                                    
                                                                               
 MR. WESSELLS:  325?  Thanks.  Right.  I would direct your attention           
 to page three, line 25.                                                       
                                                                               
 Number 286                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Okay.  So, that would be your interpretation of           
 changes, etc.  Is that, so what your testimony expresses, your                
 interpretation of what the bill says at that point, is that what              
 you're saying?                                                                
                                                                               
 MR. WESSELLS:  That's correct, what, if I could elaborate just a              
 bit.                                                                          
                                                                               
 CHAIRMAN ROKEBERG:  Please.                                                   
                                                                               
 MR. WESSELLS:  The bill allows the commissioner to effectively                
 renegotiate the royalty terms of an existing lease and as part of             
 that negotiation, the parties could condition, or they, the                   
 commissioner could condition as a term in the lease provision, that           
 the reduction would either be reversed or changed, or reopened for            
 discussion if circumstances that are assumed and stated in the                
 renegotiation were to change.  So, it would be a part of the                  
 contract itself.  It would not be a unilateral power on the part of           
 the commissioner.  It would be a matter of agreement of the parties           
 at the time they renegotiated the arrangement.                                
                                                                               
 Number 301                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Excellent.  So, as you say there could be a               
 condition, but it isn't necessarily a condition on this existing              
 statute.                                                                      
                                                                               
 Number 303                                                                    
                                                                               
 MR. WESSELLS:  That's subject to the negotiation between the                  
 parties.                                                                      
                                                                               
 Number 304                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Do you know if your firm would have any                   
 objections if that was made part of the bill itself, where it would           
 be reopened?                                                                  
                                                                               
 Number 306                                                                    
                                                                               
 MR. WESSELLS:  Well, I think that if, if there is a reopener that             
 is mandated in the bill itself it creates a significant amount of             
 risk as far as the lessees are concerned that the terms, the terms            
 of the agreement and the premises on which they base the                      
 development could change in the future beyond what they might                 
 expect that they would change at the time that the lease was                  
 negotiated, or the new provisions were negotiated.  I think what,             
 what is acceptable is that the parties make a good faith agreement            
 and have a meeting of the minds during the course of the                      
 negotiation as to what conditions would allow for reopening, or how           
 the actual amount of royalty would change given certain conditions            
 such as price change, amount of oil and gas in the reserve, or in             
 the deposit, or pool.  If they were to change beyond what the                 
 expectations as stated in the renegotiation were.  Things of this             
 nature rather than just a unilateral power on the part of the                 
 commissioner to say this royalty arrangement is no longer any good.           
                                                                               
 Number 321                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Very good.  There are a few other witnesses               
 today that, there will be a few other questions I know.                       
 Representative Ogan, you have a question?                                     
                                                                               
 Number 324                                                                    
                                                                               
 REPRESENTATIVE SCOTT OGAN:  Thank you, Mr. Chairman.  You pretty              
 much answered the question somewhat, maybe I'll follow up to it in            
 about an hour, that, you know, I guess the risk that I could see              
 would be that, you know, if that, that was written into the                   
 language that it would be perceived as a risk, a greater risk on              
 the part of your company.  Basically, the only way that I would see           
 that it would be written in if there was a price change and                   
 hopefully, it's up and, you know, there's more oil there than you             
 anticipated and that's, that's the risk, I hope we all have, you              
 know, and, therefore, had to pay a little more because of the                 
 increase in price or, or more oil than anticipated through either             
 honest mistake that didn't quite estimate enough, or increase, or             
 a change in the technology where you can recover more, which has              
 already happened to existing fields.  So, basically, I wouldn't               
 have an objection if there was some sort of language either in the            
 intent of the bill or the, written into the bill that would cover             
 that and recover the state's costs if there is an increase in price           
 or volume.                                                                    
                                                                               
 Number 340                                                                    
                                                                               
 MR. WESSELLS:  Well, I think the language that I referred to that             
 exists in the current version of the bill actually does state that            
 purpose.  It, that particular power or ability is, is implied in              
 any event.  The commissioner, if the commissioner is granted the,             
 the authority in the discretion in renegotiating contracts, lease             
 contracts, then the commissioner can negotiate what terms they                
 think is necessary to protect the state's interest, including                 
 protectors; things that would protect the state's interest and                
 readjust the level of the royalty, where if the underlying                    
 circumstances which led to the grant of the reduction in the first            
 place were to change, and I think that is implied in the, actually            
 stated directly, in the provision, the area I referred to earlier,            
 which is in line 24 or 25 on page three.  It makes clear a power,             
 or an ability that already exists.                                            
                                                                               
 Number 354                                                                    
                                                                               
 REPRESENTATIVE OGAN:  May I make one more follow up?                          
                                                                               
 CHAIRMAN ROKEBERG:  Okay.  Representative Ogan.                               
                                                                               
 REPRESENTATIVE OGAN:  That's true.  That's the problem I guess that           
 I'm not totally comfortable with, just for the record I'd like to             
 state that.  And it's not meant to be a reflection on any                     
 particular person, but, or any particular commissioner, but whoever           
 the commissioner may be now or in the future, it is totally up to             
 his discretion and so it's, I'm not totally comfortable with it.              
 I think there should be some sort of safeguards to protect the                
 public's interest that maybe the commissioner is too busy, or he's            
 not getting good information, or for whatever reason, the people's            
 money is not being covered there.  As a legislator I know how busy            
 we are and how many decisions we make on a very limited amount of             
 information sometimes.  There's a possibility that could happen               
 with a commissioner.  Personally, I always had a greater comfort              
 level if there was something a little bit more specific written to            
 this, but at the same time, would not cause you guys to get real              
 nervous about, about investing in a field, for example, if it's               
 marginal.  If you can help us with a way to do that I would                   
 appreciate it.                                                                
                                                                               
 Number 372                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Representative Ogan, we are, we are working on            
 that, so.                                                                     
                                                                               
 REPRESENTATIVE OGAN:  Okay.                                                   
                                                                               
 CHAIRMAN ROKEBERG:  Hopefully, in the committee substitute we will            
 be able to cover some of those questions.  Representative                     
 Finkelstein, did you have a question?                                         
                                                                               
 Number 374                                                                    
                                                                               
 REPRESENTATIVE FINKELSTEIN:  Thank you, Mr. Chairman.  I have two             
 quick questions.  One of them is just understanding the dialogue              
 that went on before with the Chair.  The, for a company in your               
 company's situation it would be better, this is my understanding of           
 what you said, that if royalty reduction had in it some certainty             
 that the reopener wouldn't occur until the price of oil rose to               
 certain level, whatever other conditions would trigger it.  It'd              
 be, did I understand you right that it would be better to have it             
 laid out at the time of the royalty reduction, what exactly would             
 occur later?  You know, at the point where essentially it was a               
 sliding scale or a set of triggers that you knew ahead of time so             
 you weren't, you know, developing something or investing something            
 that you didn't know what lay ahead?                                          
                                                                               
 Number 382                                                                    
                                                                               
 MR. WESSELLS:  That's correct.  I think it's, it's important that             
 we have, we can't have absolute certainty about the facts, which is           
 never the case, at least we have to have absolute certainty about             
 the process which occurs when the facts do change rather than                 
 having the possibility of having, not knowing what the decision-              
 making process, or the adjustment process would be, and if there              
 were to be a change in the underlying circumstance.  And, of                  
 course, these things are typically the subject of negotiation in              
 normal commercial relationships.  And that would be what we                   
 envisage would happen, or would occur in the course of making the             
 reduction in the first instance.                                              
                                                                               
 Number 391                                                                    
                                                                               
 REPRESENTATIVE FINKELSTEIN:  Okay, Mr. Chairman, the other, other             
 question is on confidentiality.  Do you have any experience with              
 the current, or any awareness of the current confidentiality                  
 provisions under this section, and do you have any problems with              
 how it's laid out now, or required, you know requirement that you             
 essentially separate your information in what you want confidential           
 and what isn't confidential?                                                  
                                                                               
 Number 396                                                                    
                                                                               
 MR. WESSELLS:  I do not have any experience personally with this              
 sort of matter.  Within the Department of Natural Resources, they             
 have quite a lot of experience with this sort of matter within, in            
 dealing with the Department of Revenue on tax matters, and as you             
 probably are aware, there is quite a lot of company, individual               
 company information that is confidential that must be disclosed to            
 the Department of Revenue during the course of an examination of              
 tax returns and we have never had a bad exp...  We have never had             
 a bad experience in terms of information actually being leaked or             
 disclosed to other people, at least persons in BP, by any member of           
 the Department of Revenue, and I would presume that the same sort             
 of standards and safeguards would exist and we respect the                    
 information that's disclosed in the course of dealing with the                
 Department of Natural Resources.                                              
                                                                               
 CHAIRMAN ROKEBERG:  Does Representative Finkelstein have a follow             
 up?                                                                           
                                                                               
 Number 408                                                                    
                                                                               
 REPRESENTATIVE FINKELSTEIN:  Thank you, Mr. Chairman.  Just to                
 understand the, I guess what I was asking, and maybe the answer is            
 you haven't experienced this, do you have any problem with                    
 justifying the confidentiality in saying, we want this material to            
 be confidential because of such and such?  I assume with the                  
 Department of Revenue that isn't much of an issue, that it's all              
 treated as confidential?                                                      
                                                                               
 MR. WESSELLS:  Yes.                                                           
                                                                               
 REPRESENTATIVE FINKELSTEIN:  It's a different standard here under             
 DNR.                                                                          
                                                                               
 Number 412                                                                    
                                                                               
 MR. WESSELLS:  Well, I think that, that whatever, the way the bill            
 is written is that whatever is disclosed in terms of financial and            
 technical information will be held confidential unless the                    
 applicant elects to have it disclosed.                                        
                                                                               
 REPRESENTATIVE FINKELSTEIN:  I was trying to ask about the status             
 quo now with DNR.                                                             
 Number 415                                                                    
                                                                               
 MR. WESSELLS:  To my knowledge, there has not been a problem.                 
                                                                               
 REPRESENTATIVE FINKELSTEIN:  Thank you, Mr. Chairman.                         
                                                                               
 Number 417                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Just one more question from the Chair, Mr.                
 Wessells.  In discussions with various companies in the industry,             
 and trying to put together a sliding scale royalty graph, or a                
 scheme for the sliding scale royalty, (indisc.) do you think that             
 that should be mandatory in this bill, or just part of a                      
 panoply(ph) of options for the commissioner? And secondly, and                
 obviously, let's open the discussion knowing that each type of a              
 formula or scheme would be put together for a discrete project,               
 obviously.  One size doesn't fit all, obviously, in that regard.              
 But given the fact that with a, I like to call it step one in terms           
 of putting together a sliding scale, your going to use a graph that           
 will show royalty rate and prices, oil prices.  So, could you, with           
 your background in this area, would you tell me at what price that            
 your firm would use or would recommend using, for the price                   
 component, and number two, if, in fact, you had a sliding scale               
 royalty what do you think about the necessity of the effect of                
 putting a, like a GDP deflator factor in that to adjust for the               
 price of oil all the time?                                                    
                                                                               
 Number 432                                                                    
                                                                               
 MR. WESSELLS:  Yes, Mr. Chairman, I think that you referred to                
 something in the first part of the question is really the reason              
 why I think it's very difficult, if not impossible, to standardize            
 this sort of thing, at least based on the knowledge that we have.             
 That is that all of these properties that might be subject to                 
 applications are quite different.  They're unique, in fact.  They             
 will have different characteristics in terms of size, remoteness,             
 from existing infrastructure or transportation facilities.  They              
 will all have different cost structures.  It's very difficult to              
 prescribe a standard that would fit every situation.  And that is             
 why the, the idea, I believe is the idea behind this bill is to               
 empower the Department of Natural Resources to, to decide what sort           
 of scheme fits the purpose most correctly.  And without having to             
 choose from a menu that is preordained, and in order that the                 
 department can make rational judgement the bill provides that there           
 will be full disclosure of the information as necessary to make               
 that sort of judgement, and I think that that is how that                     
 particular problem is dealt with in this bill.  And as far as our             
 company, answering the second part of the question, BP having an              
 idea of what the right price is, and whether a specific version of            
 the GDP deflator is correct for any particular circumstance, we               
 would not.  We would, we would enter into discussion concerning               
 these matters the same way that the department would on a, you                
 know, discrete basis regarding the specific property that was the             
 subject of the discussion, and we might have a different standard             
 for a different property.                                                     
                                                                               
 Number 453                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Just, (indisc.) you said the full disclosure?             
                                                                               
 Number 455                                                                    
                                                                               
 MR. WESSELLS:  Yes.                                                           
                                                                               
 Number 456                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Where in the process would you have full                  
 disclosure?                                                                   
                                                                               
 Number 457                                                                    
                                                                               
 MR. WESSELLS:  When you make the application it's important, the              
 applicant is required to disclose both financial and technical                
 information.                                                                  
                                                                               
 Number 458                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  But that's confidential.  It's under the                  
 confidential...                                                               
                                                                               
 MR. WESSELLS:  What I meant was full disclosure to the department.            
                                                                               
 CHAIRMAN ROKEBERG:  Oh, full disclosure to the department.  Ah,               
 okay.  I, forgive me.  It's a public perspective that I have.                 
 Right.  Forgive that.  Representative Brice, you have a quick one?            
                                                                               
 Number 459                                                                    
                                                                               
 REPRESENTATIVE TOM BRICE:  Yeah.  Just a quick one.  Basically, a             
 statement, you know, I agree with what you're saying, Mr. Wessells,           
 about the development of these fields and to try to prescribe and             
 that some type of sliding scale or other type of, you know, royalty           
 share table.  I think it would be very difficult and you're not               
 going to be able to find something that's going to be able to fit             
 in all the circumstances, so, you know, I'd just like to bring in             
 on the side that what we need to do is allow the flexibility for              
 this discussion to continue between industry and the department,              
 and that's basically about it.  You (indisc.) what I was talking              
 about.                                                                        
                                                                               
 Number 467                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Well, thank you very much, Mr. Wessells.  If              
 you will make yourself available for questions.  I know you will.             
                                                                               
 MR. WESSELLS:  Thank you.                                                     
                                                                               
 CHAIRMAN ROKEBERG:  Appreciate your testimony today.  Moving on to            
 Anchorage, I believe we have a Mr. Peterson for testimony.  Are you           
 available, Mr. Peterson.                                                      
                                                                               
 Number 470                                                                    
                                                                               
 JOHN PETERSON, ALASKA INTERSTATE CONSTRUCTION, INC. - ANCHORAGE               
 (TELECONFERENCE):  Yes, I'm here.  Can you hear me?                           
                                                                               
 CHAIRMAN ROKEBERG:  Yes, sir, five by five.                                   
                                                                               
 MR. PETERSON:  Okay.  Senator Rokeberg and others, I am John                  
 Peterson. I work for Alaska Interstate Construction at 649 West               
 54th here in Anchorage.  I am addressing House Bill 207.  I am                
 testifying this morning as a five year Alaska resident and have               
 seen almost all resource development diminish as a result of                  
 regulations (indisc.) controlled by agencies (indisc.) the state              
 and I (indisc.).  I believe that House Bill 207 as proposed will              
 provide the industry with enough protection, with incentives to               
 develop the small and marginal fields by removing some of the                 
 risks, by protecting the state and its resident's interests.  House           
 Bill 207 will allow development of these marginal fields with less            
 risk by removing some of the obstacles such as the price of oil as            
 a factor and these developments would provide jobs, not only during           
 the construction installation and operations, but still provide the           
 long-terms positions to the state and local tax base.  I, I feel              
 very positive about House Bill 207 and I think you for the                    
 opportunity.                                                                  
                                                                               
 Number 487                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Thank you very much, Mr. Peterson.  We                    
 appreciate your testimony and we really appreciate that.  Is there            
 anybody else on line in Anchorage or any other locations on line              
 right now?  Hearing nobody, the teleconference portion of the                 
 testimony can cease and then it's that Mr. Boyd was here, Bill.               
 Yeah, maybe, we had some questions the other day.  We can take                
 advantage of his time here.  I'm not sure.  Is there anybody else             
 in the audience that want's to testify today.  For example, no?               
 Okay.  Mr. Boyd, if you, if you, we have some time if you'd like to           
 come up here and perhaps use this time to make any statements you'd           
 like and perhaps respond to some of the queries we had the other              
 day.                                                                          
                                                                               
 Number 497                                                                    
                                                                               
 KEN BOYD, DEPUTY DIRECTOR, DIVISION OF OIL AND GAS, DEPARTMENT OF             
 NATURAL RESOURCES:  Mr. Chairman, members of the committee.  For              
 the record.  My name is Ken Boyd.  I'm the acting director for the            
 Division of Oil and Gas.  Mr. Chairman, I got a fair few                      
 assignments the other day, yesterday.  As you know, the attorney              
 that worked on this for some time is, is not in town, but that's              
 not to say there aren't other attorneys and other people in the               
 state, but I've been working on things and I do have some things I            
 hope to be able to share a few more tomorrow perhaps.  I have not             
 shared them with the commissioner, but I do have at least one                 
 thing, perhaps two things.  The first one is, one of the                      
 discussions yesterday the committee was on contractors.  There is             
 a provision in the bill that you can use a third-party contractor             
 that, if the state required it.  If the, if there was an                      
 application that we needed some technical work on it, as I                    
 described it yesterday, that could be picked.  And the current                
 language as a condition of evaluating an application (indisc.) the            
 commissioner may require of lessee to pay the cost of contractor              
 selected by the commissioner to assist in the evaluation.  That's             
 on page three, three lines, the pertinent language is lines nine              
 and ten.  I have a suggestion.  And there was some discussion about           
 that.  How do you, how do you, maybe you don't like the person that           
 the commissioner picks.  So we went back and looked at a case that            
 in Western Alaska that happened last year, a couple of years ago              
 actually, called Good News Bay, and we've gone back to look at some           
 of the federal, the way the federal government does, selects                  
 contractors for the EIS process, another tax paying process.  And             
 here's what we've come up with.  And this is just a suggestion                
 again.  The way it works is that the state would pick three                   
 contractors, you know, three people who could do the work, and then           
 industry gets to pick off that list of three.  Then industry would            
 pay the contractor.  The state would define the scope of work,                
 whatever the work that needs to be done, and it would be a little             
 different each time perhaps, but generally speaking, I think it               
 would be mostly technical grinding of numbers.  But, in any case,             
 the state would define the scope of work.  Industry would pick from           
 the list of three.  Industry would pay the contractor without the             
 state being involved in the procurement process, and you know all             
 the acronyms we use to trade money around.  I believe that's                  
 eliminated.  And it was found by the court that that is an                    
 acceptable procedure.  So, I can, I will try to assemble more of              
 the background information on that, Mr. Chairman, but in concept,             
 we would agree to that, and perhaps, you know, the industry would             
 care to comment.  But that's something I'd like to bring forward.             
                                                                               
 Number 526                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Well then, Mr. Boyd, we would avoid the                   
 necessity of going through state procurement code for this?  Is               
 that what you, that would speed up the process?                               
                                                                               
 Number 527                                                                    
                                                                               
 MR. BOYD:  Yes, Mr. Chairman.  Truly, the way it works is we would            
 supply the list of three and with industry picking from the list,             
 the one they would say, okay this is what we want you to use.  From           
 then on all of the financial negotiation, if you like.  All the,              
 all the dealing in terms of dollars is done in the background.  But           
 we would provide the foreground, the scope of work that we perceive           
 was needed to be done.  And again, the state does not involve in              
 any of the bill paying; doesn't even see the bills; doesn't care              
 what the bills are.                                                           
                                                                               
 Number 532                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  So, there is precedence and there is some case            
 law that provides (indisc.)                                                   
                                                                               
 MR. BOYD:  Yes, Mr. Chairman.                                                 
                                                                               
 CHAIRMAN ROKEBERG:  That'd be, I think, excellent because there has           
 been suggestions like this on both sides.  That may solve that                
 problem if you could help us with some language we'd appreciate it.           
 And you had some more for us.                                                 
                                                                               
 Number 535                                                                    
                                                                               
 MR. BOYD:  Yes, Mr. Chairman.  I do have some other things, Mr.               
 Chairman, but again, I just have not had an opportunity to talk to            
 Commissioner Shively about some of them.                                      
                                                                               
 CHAIRMAN ROKEBERG:  I can appreciate that.                                    
                                                                               
 MR. BOYD:  And, until I do so, unless, unless the committee has               
 some other questions, I, I know there's a, I say I know, I believe            
 there's a hearing tomorrow.                                                   
                                                                               
 CHAIRMAN ROKEBERG:  Yes, there is.                                            
                                                                               
 MR. BOYD:  And I hope to be prepared by then to, to bring up some             
 of the other issues, but would be glad to answer any questions that           
 were left over from yesterday.                                                
                                                                               
 Number 540                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Did anybody have any questions here?  Advise              
 we've got a couple minutes.  Mr. Boyd, would you like to comment on           
 the statements by Mr. Wessells as relates to the reopeners and even           
 perhaps you could even expand that and even comment on a sunset               
 clause and the pros and cons of that.                                         
                                                                               
 Number 544                                                                    
                                                                               
 MR. BOYD:  Mr. Chairman, I agree with what Mr. Wessells said that,            
 what, I believe what he's saying.  I won't speak for him.  Since              
 he's here he can, he can give me a bad glare if I do say something            
 wrong.  But what he's saying is that when the applicant comes in              
 for a royalty reduction you're entering into a new contract.                  
 You're talking to the commissioner and saying, we believe we need             
 a royalty reduction.  We just started the process.  We need to                
 negotiate what it is that has to be done for us to reach our                  
 objective, or hopefully, a calm objective.  As part of that, you              
 will negotiate as he said, no specific thing right away.  There's             
 no, you don't pick out a check list and say, well, it's this field            
 and that field and this field so you have to do it this way.  No.             
 It's, what, what are you trying to achieve?  And how do you do it?            
 And you work through that, but as part of that the commissioner               
 should be able to also say, ah, very good, you know I recognize               
 that you need this, this benefit now perhaps, but what about if the           
 oil price changes?  Or your field is four times bigger than you               
 thought it was?  I want the ability to raise your royalty at some             
 point in time.  And I think that's, think that's all Mr. Wessells             
 is saying, that the negotiations, you don't need a reopener in law,           
 because, I think it's because it's a disadvantage to have that                
 because it just invites more work for one thing, but just an                  
 opportunity for somebody to just leap in and say, well, something             
 is changed.  We need to reopen.  Perhaps on some spurious basis               
 that has no basis.  And then you have to decide how will you                  
 resolve whatever it is you've reopened upon.  Who gets to chose?              
 I mean, who is right?  Does it wind up in court?  Does it wind up             
 as with an arbitrator?  There's just more expense and I think it's            
 unneeded expense.  I have a, I have a potential solution and it's             
 a one-word change.  I'm going to offer it now as a consideration,             
 but not as an official, if you like, position, but it's something             
 to consider and perhaps discuss tomorrow. On page three, line 21,             
 where it says the commissioner may condition a royalty reduction              
 granted under the subsection in any way necessary to protect                  
 state's best interest.  That sentence.  Instead of saying may, say            
 shall.  It, it's, in a sense it should give you some certainty that           
 the commissioner will have to consider the upside and the downside            
 potential.  That's the way I read that.  I'm trying to avoid the              
 idea of having a reopener in law when I believe that a reopener is            
 a reasonable part of a new contract; that would certainly be part             
 of a new contract.  As to the sunset provision, I have talked to              
 Commissioner Shively, but not at any great length about this and we           
 do not support a, he does not support a sunset provision.  I,                 
 perhaps the easiest reason to say we don't support a sunset                   
 provision is this bill is, is part of a whole concept, I think,               
 that we're trying to attract new players to Alaska and encourage              
 the players we have here to stay.  A sunset provision might very              
 well encourage the players we have now today to stay, but when you            
 think about attracting, and yesterday it was talked about, a five-            
 year sunset, but think about it.  With the delineation requirements           
 in this bill you try to attract a new player with a new law, with             
 a five-year commitment they have to make a delineated field and               
 apply for royalty reduction.  I think you don't have enough time.             
 I really don't think the new player is going to be that attracted             
 to something where that company has to sort of play catchup with              
 companies that are here today.  So, I believe if you think it's a             
 good law it should be a good law, and it should stay a law, and if            
 it turns out to be a lousy law that it could be repealed at some              
 point, but I don't think a built in sunset is an advantage for new            
 players.                                                                      
                                                                               
 Number 587                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Mr. Boyd, going back to the reopeners issue, I            
 know it, because like Representative Ogan mentioned some of his               
 concerns to stipulate that reopeners should be part of a bargain              
 that the commissioner would make with a applicant, wouldn't the               
 provisions for reopener, if they were stipulated to be based on a             
 well price consideration, or a field production volume...                     
                                                                               
 TAPE Number 95-11, Side B                                                     
 Number 000                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  ...without being too specific.  Wouldn't that             
 be acceptable?                                                                
                                                                               
 MR. BOYD:  Mr. Chairman.  I absolutely agree that those can be two            
 parts of a, of a very long equation.  I guess the problem I have              
 with adding more and more words, I mean, certainly, I could make              
 that line very, very long, and if I drag petroleum engineers up               
 here, we could make it really long as to what factors might change            
 over time.  I think all this bill says is that if something changes           
 the commissioner is going to look at that change say what, what               
 should I do now?  And that will be part of the negotiated contract.           
 Each field will have different characteristics.  A field would be             
 so well delineated you just know it's not going to triple in size.            
 Another one might not be quite so well delineated.  So, I, I agree            
 with you that you can make a list with other, of other things that            
 may change, but I still believe that just the fact that you have              
 that statement there that the commissioner will consider that.                
 That is again, goes back to the idea of having a contract, that               
 you're going back and you're talking to the company, the company is           
 talking to the state, and you're saying, okay, you need a benefit             
 now; we need a benefit if this happens, and you work through the              
 financials.  You work through the many, many different things that            
 may go into the equation.  I, I'm not certain that you could ever             
 make a list long enough.  I also am afraid of lists that if you               
 make a list too long people begin to think that that's the only               
 things you consider.  And that's, quite honestly, my opinion.                 
                                                                               
 Number 028                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  I think I'm really concerned about the 60                 
 occupants of this building and what they're concerned about.                  
 That's....                                                                    
                                                                               
 MR. BOYD:  Mr. Chairman, I am only offering my opinion.                       
                                                                               
 CHAIRMAN ROKEBERG:  Right.  And the rest of the people in the                 
 state, who we represent.  I mean, that's what I'm driving at.                 
 That's the only reason we're bringing this up.                                
                                                                               
 Number 033                                                                    
                                                                               
 MR. BOYD:  I quite understand, Mr. Chairman.  Again, I'm only                 
 trying to point out both sides of looking at this.  I'm not                   
 suggesting that you do one thing or another, only that you consider           
 that sometimes lists can be used to knit the rope that hangs you.             
 And sometimes discretion is something that a reasonable person will           
 do in a contract and perhaps you can get it right.                            
                                                                               
 Number 040                                                                    
 CHAIRMAN ROKEBERG:  Any questions?  Representative Finkelstein.               
                                                                               
 Number 047                                                                    
                                                                               
 REPRESENTATIVE FINKELSTEIN:  Thank you, Mr. Chairman.  Before we              
 leave this subject, I just want to make sure I fully understand               
 what you're saying here, that if the two choices on when to make              
 this deal on when the royalty goes back up.  If the one choice is             
 at the time of the royalty reduction request and the other that,              
 under this idea you'd go and you'd make it as part of the package.            
 You'd say it would go up in the future as oil prices go up a dollar           
 then the royalty goes up X percent, that you would not think,                 
 prefer that, that you'd prefer just some indeterminate reopener               
 clause where it could be reopened by the state at a later date, and           
 changed then based on a variety of factors.  Is that what I -- am             
 I interpreting....                                                            
                                                                               
 Number 055                                                                    
                                                                               
 MR. BOYD:  Mr. Chairman and Representative Finkelstein.  In a                 
 sense, yes.  Again, it, it may not even come to a reopener.  It may           
 be that it's a simple enough deal, say, that you could understand             
 it well enough that you can project things for a life of a certain            
 field.  But, in many cases, I think you may have to have trigger              
 points, and I believe Representative Rokeberg has talked about this           
 in terms of sliding scale.  It can mean many things.  Sliding                 
 scales don't have to be linear.  Sliding scales can be steps.                 
 There's all different ways to, to create things.  You may create              
 trigger points in time, or in terms of dollars, or in terms of                
 volume that you would have to consider.  But I, again, I'm only               
 afraid that if you specify something in law that becomes, it can              
 become the only think you consider, and I believe that you can                
 craft a better decision through negotiation of the company and the            
 state after it's determined that you need to have a negotiation at            
 all.                                                                          
                                                                               
 REPRESENTATIVE FINKELSTEIN:  Mr. Chairman.                                    
                                                                               
 CHAIRMAN ROKEBERG:  Representative Finkelstein.                               
                                                                               
 Number 072                                                                    
                                                                               
 REPRESENTATIVE FINKELSTEIN:  Just a (indisc.), Mr. Chairman.  I               
 think I understand it now and I, I don't pretend to understand all            
 the ramifications, but it just seems that, and correct me if I'm              
 wrong, that that, what the state will be giving up is a strategic             
 advantage that when a company is in trying to work out a royalty              
 reduction they're going to be pretty willing at that point to go an           
 make a deal for future.  If it goes back up, you know, we're                  
 willing to pay more because they're getting a benefit that if it's            
 six years down the road that you're, instead of trying to do this,            
 the company's interests are, leave us alone.  You know, they,                 
 you're trying to get them to the table.  You're trying to negotiate           
 them with more, or impose it if you have to, but all of the                   
 political battles and all the kind of battles that go on then,                
 they, it seems to me you've lost your advantage.  You've given them           
 the benefit six years ago and now you're asking them to do                    
 something and try, and you know, with the ability to impose if you            
 have to, but with a variety of political pressures and a variety of           
 ramifications on your relationship with them, it seems to me you've           
 lost your chance to have an advantage.                                        
                                                                               
 Number 089                                                                    
                                                                               
 MR. BOYD:  Mr. Chairman, Representative Finkelstein.  Again,                  
 writing the contract does not foreclose any opportunity, I think.             
 And you, you could build in a reopener.  You might decide that,               
 depending on the company, the field, the economic conditions at the           
 time, perhaps you need to reopen.  But, again, I think it should be           
 an opportunity of the contract rather than the force of law, to say           
 you have to look at it.  I'm saying that not every case will you              
 need that.  Or perhaps the commissioner may decide in every case              
 you do need that, but I, I don't believe every contract needs to              
 have that provision, but I think it should be, and again, it is,              
 there is no prohibition of reopeners in the bill as it is now.  I'm           
 not sure that you have to say that you have to do this because                
 there are some cases where I think if older fields in Cook Inlet,             
 I don't think you would ever need to do that, and it becomes a time           
 consuming and perhaps time wasting process.  I believe all the                
 opportunities for negotiation are open under this bill.                       
                                                                               
 Number 101                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Mr. Boyd, it appears that you and the                     
 commissioner agree that the state would like to have maximum                  
 flexibility with not too much intrusion by the legislature and                
 bargaining your arrangements, and I can appreciate that.  But, I,             
 we're kind of running down time here and I did have a question for            
 Mr. Wessells, if I can remember it.  Let's see now.  Oh, what was             
 it now?  Well, Paul, if I can remember what it was.  Why?  No, no,            
 that's my normal one.  Something about the, I don't know.  Oh yes,            
 I know.  Thank God, I remembered.  I understood that your firm, and           
 perhaps some other firms, were going to help us out, this committee           
 out, by providing a definition of fields.  Does that ring a bell              
 with you?                                                                     
                                                                               
 Number 127                                                                    
                                                                               
 MR. WESSELLS:  Not with me in particular.  I did hear, listening to           
 the testimony from yesterday in which a suggestion was made that              
 the term be expanded to include horizons within an existing field,            
 and I think that is a helpful suggestion.  But beyond that, I had             
 not had any conversations with anyone about it.                               
                                                                               
 Number 133                                                                    
                                                                               
 CHAIRMAN ROKEBERG:  Well, forgive me, because you're the moving               
 target for BP today, that's why I asked you the question.  Perhaps            
 you could help us out by tomorrow on that.  And I think Unical's              
 got some ideas and I got some from ARCO today too, so, it's                   
 something perhaps we can discuss tomorrow morning.  Are there any             
 other questions of the committee?  Good.  Well then, we'll look               
 forward to seeing everybody at 10:00 a.m. tomorrow with bells on              
 our toes.  This meeting is adjourned.                                         
 Meeting adjourned at 6:00 p.m.                                                
                                                                               

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