Legislature(1995 - 1996)

03/17/1995 05:00 PM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                            
                         March 17, 1995                                        
                           5:00 p.m.                                           
 MEMBERS PRESENT                                                               
 Representative Norman Rokeberg, Chairman                                      
 Representative Bettye Davis                                                   
 Representative David Finkelstein                                              
 MEMBERS ABSENT                                                                
 Representative Scott Ogan, Co-Chair                                           
 Representative Gary Davis                                                     
 Representative Bill Williams                                                  
 Representative Tom Brice                                                      
 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 - 03/17/95                                                               
 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                                                              
 KEN BOYD, Deputy Director                                                     
 Division of Oil and Gas                                                       
 Department of Natural Resources                                               
 3601 C Street, Suite 1380                                                     
 Anchorage, AK  99503-5948                                                     
 POSITION STATEMENT:  Answered questions on HB 207                             
 PREVIOUS ACTION                                                               
 BILL:  HB 207                                                               
 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)                       
 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                    
 03/15/95              (H)   MINUTE(O&G)                                       
 03/16/95              (H)   O&G AT 10:00 AM CAPITOL 124                       
 03/16/95              (H)   MINUTES(O&G)                                      
 03/17/95              (H)   O&G AT 05:00 PM CAPITOL 124                       
 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                    
 03/15/95              (H)   MINUTE(O&G)                                       
 03/16/95              (H)   O&G AT 10:00 AM CAPITOL 124                       
 03/16/95              (H)   MINUTE(O&G)                                       
 03/17/95              (H)   O&G AT 05:00 PM CAPITOL 124                       
 ACTION NARRATIVE                                                              
 TAPE 95-14, SIDE A                                                            
 HO&G - 03/17/95                                                               
 HB 207 - ADJUSTMENTS TO OIL AND GAS ROYALTIES                               
 Number 000                                                                    
 CHAIRMAN ROKEBERG:  ...are you there?  Hello, Anchorage.  Ken?                
 Ken?  Anchorage.                                                              
 (Aside:  They were there a few minutes ago.)                                  
 CHAIRMAN ROKEBERG:  Is everybody here that want's to testify today?           
 We have a lot of observation.  Right.  Why don't we just try to get           
 them again.  Bill Van Dyke, he's still missing.  Is there hearings            
 still going on in the Senate right now?                                       
 UNKNOWN FEMALE:  I think it's over.                                           
 CHAIRMAN ROKEBERG:  Okay.  Yeah.  We could be real informal.  I               
 just want to make the secretary's job as easy as possible.  It's              
 unfortunate that Bettye, Representative Bettye Davis and myself are           
 in attendance.  We don't have a quorum.  There's a number of people           
 traveling.  The fish guys are in Kodiak, etcetera.  But there's a             
 few, I just was trying today, the Chair's intention today was to              
 take any more further testimony from the public, is to have the               
 Division of Oil and Gas Commissioner's Office present any testimony           
 or any answers to questions they might have.  And discuss                     
 conceptually with them a few points right now that we're working on           
 in our, our committee substitute draft.  We're in the middle, for             
 everybody's information, we're in the middle of drafting our                  
 committee substitute -- how's he doing?  Have you got through yet?            
 That's all right, we're not on the record.  We're on the record,              
 but we're not on the record.                                                  
 UNKNOWN FEMALE:  Ken isn't talking yet.  He's still in resources.             
 Don't you have anything to use?                                               
 CHAIRMAN ROKEBERG:  Resources.  He's still over in ....                       
 UNKNOWN FEMALE:  Revenue (indisc.).                                           
 CHAIRMAN ROKEBERG:  No, he's in the Senate Resources Committee.               
 That's what's going on.                                                       
 UNKNOWN FEMALE:  Okay.  So, I guess he's not there yet.                       
 CHAIRMAN ROKEBERG:  Well, we can just have a public debate here               
 about our CS we don't have and wait for Ken to show up 'cause                 
 there's a few, just...                                                        
 UNKNOWN:  He's going to come back?  If he was there, I mean, it's             
 a mess in Anchorage.                                                          
 CHAIRMAN ROKEBERG:  Yeah, he's, he's....                                      
 UNKNOWN:  Oh, he's coming back here (indisc - both talking).  Oh,             
 you mean Ken Boyd.                                                            
 CHAIRMAN ROKEBERG:  Yeah.  He's not talking over us.  He's with               
 Senate Resources.                                                             
 UNKNOWN FEMALE:  (Indisc.) in town.  Everybody else is gone.                  
 CHAIRMAN ROKEBERG:  I know.  Well, he's the only, he's                        
 teleconferencing Senate Resources there.                                      
 UNKNOWN FEMALE:  Oh, okay.  I see.                                            
 CHAIRMAN ROKEBERG:  See, as soon as he gets done with that he will            
 come over and....                                                             
 UNKNOWN FEMALE:  I understand now.                                            
 CHAIRMAN ROKEBERG:  So, we're going to take what little testimony             
 we have and talk about some of the problems that we're facing with            
 the CS.  There's been a, the first one I want to bring up is the,             
 and I would invite any comments from the audience here in this                
 regard, in terms of the oversight we've been discussing various               
 entities, groups or individuals to be part of the oversight group.            
 There seems to be general consensus that we could it at the                   
 Attorney General as part of that, and so we're giving that                    
 (indisc.) consideration.  My concern is that to expand that we have           
 to have discussions about the Alaska Oil and Gas Conservation                 
 Committee, and also the Royalty Board.  And I was going to have Mr.           
 Boyd or Mr. Bill Van Dyke, of his office, talk to us about that               
 today.  There seems to be some resistance on the part of people to            
 put, to put this entity in the loop, and I, I'm not sure.  What I'm           
 hearing from at least some members of the committee is they agree             
 with my idea of having the loop, but we haven't really had a                  
 discussion about that.  And as I understood it, I've taken some               
 comments from various people regarding an apparent conflict of                
 interest between the conservation commission and the, and decision            
 on a royalty reduction.  You know, there's the scope of purpose of            
 the conservation commission is to maximize to the best efficiency             
 the lifting of oil in various pools and units in the state of                 
 Alaska.  There seems to be the growing consensus that that might be           
 at odds with the charge of reviewing this, so.  I have yet to be              
 convinced possibly, but I'm hoping to discussing the royalty board,           
 and the (indisc. - coughing) is comprises of six members three of             
 which are public and three of which are commissioners, including              
 the Commissioner of Natural Resources, Commissioner of Commerce and           
 the Commissioner of Revenue.  Is that right?  And, that they are              
 appointed at the will of the Governor as far as the conservation              
 commission is appointed (indisc.) room for cause.  Do I hear some             
 noise in the background?  Ken, you're there.                                  
 Number 116                                                                    
 NATURAL RESOURCES (Teleconference):  Yes.  I apologize, Mr.                   
 Chairman.  It just worked out that two trains that crashed at five            
 Number 117                                                                    
 CHAIRMAN ROKEBERG:  I can appreciate that.  I know that, and I                
 fully understand, and I'm glad you could make it.  And we're just,            
 there's a few folks here in the room from the industry and                    
 Representative Davis and Representative Finkelstein.  We don't have           
 a quorum, but we're taking testimony and we would like to ask you             
 a few questions and let you respond, and then we can discuss a few            
 other things and maybe we can adjourn so we can go back to work on            
 drafting the CS.  And first and foremost, we're, I was just                   
 discussing the conversations we've had about the, the oversight               
 loop as it related the attorney general, the problems with the                
 conservation commission, which I appreciate your comments on, any             
 conflict of interest there?  And then, the department's position on           
 utilizing the royalty oil and gas development board as part of the            
 loop.  Could you, could you expand on those and answer some of                
 those questions, sir?                                                         
 Number 141                                                                    
 MR. BOYD:  I'll certainly try, Mr. Chairman.  I, I provided staff             
 with the attorney general's opinion from 1980 that in pertinent               
 parts was, we (indisc.) that from a legal standpoint even the                 
 appearance of a connection between the commission and the                     
 department of natural resources would be inadvisable.  And it goes            
 Number 150                                                                    
 CHAIRMAN ROKEBERG:  Excuse me, Mr. Boyd.                                      
 Number 154                                                                    
 MR. BOYD:  It just seems that there is inherent conflict of                   
 interest between having AOGCC give oversight to DNR.                          
 Number 155                                                                    
 CHAIRMAN ROKEBERG:  Mr. Boyd, was that, you gave me about a sheaf             
 of papers, maybe five to eight pages there, the other day with some           
 pink and blue highlight, was that the one you were referring to?              
 Number 156                                                                    
 MR. BOYD:  Yes, Mr. Chairman.                                                 
 CHAIRMAN ROKEBERG:  Okay, good.  Okay.  We I.D.'d that one, it's              
 somewhere in the stack.  Okay.  Now that we know what we're looking           
 for.  Thanks, Ken.                                                            
 MR. BOYD:  Okay.                                                              
 CHAIRMAN ROKEBERG:  (Indisc.)                                                 
 Number 165                                                                    
 MR. BOYD:  (Indisc.) it is also, it also an opinion of theirs from            
 a former, well, she is an attorney, and it's also, it sort of                 
 flushes out some of the statements that are made in the attorney              
 general's opinion.  And again, we do see it as, as a fairly direct            
 conflict of interest.  As to the other perhaps message of                     
 oversight, to the extent that we believe that, the committee                  
 believes that oversight is required, there are two other things               
 perhaps to consider.  One being the concurrence of the attorney               
 general and the other is the Alaska Oil and Gas Royalty Board,                
 which, it's not quite their full and correct title, but that's what           
 they are called, the Royalty Board for short, and I just caught the           
 part, Mr. Chairman, where you described the composition of the                
 royalty board.  The royalty board is directly, has reviews to take            
 testimony on in-kind oil sales.  In other words, and this will be             
 happening fairly shortly.  We're trying to negotiate a contract now           
 with Tesoro.  And what happens is we negotiate the contract with              
 Tesoro and we take the contract to the royalty board, the six                 
 members, and we present the contract and we are asked questions and           
 the royalty board reviews the contract, and as a result, it's a               
 public meeting, and as a result of that, the royalty board makes              
 its recommendations to the legislature prior to the bill being                
 introduced.  The royalty board is, is anybody that I have talked to           
 I have obviously not researched this thing to its depth, but it has           
 been my experience that it has never been used for any other                  
 purpose, which is not to say it could not be.  There are the three            
 commissioners and there are three members selected from the public            
 that are supposed to have at least some knowledge of oil and gas,             
 although it says so without any specificity whatsoever.  In my                
 view, it might be difficult, you can add little layers, if you                
 like, of, I don't want to call it bureaucracy, but it is a little             
 layer of, of (indisc.) that's hard, that it will take to review               
 these things.  Again, it's Commissioner Shively's view that if                
 oversight is required, he believes the concurrence of the attorney            
 general will, when you consider you have a public notice, I beg               
 your pardon, a finding process and a public hearing process as part           
 of this bill, you have the concurrence of the attorney general.               
 Commissioner Shively believes it's quite enough oversight.                    
 Number 215                                                                    
 CHAIRMAN ROKEBERG:  But, in terms of all the, exclusive of the                
 attorney general, if you had to make a choice, the royalty board              
 would be better than the conservation commission.  Would that be              
 fair to say?                                                                  
 Number 219                                                                    
 MR. BOYD:  Yes, Mr. Chairman.  I mean, there's no, the AOGCC is               
 clearly conflicted, really conflicted.  The royalty board is                  
 clearly not conflicted.  (Indisc. - coughing) or about DNR's                  
 activities or perhaps bid over new unit agreements at the same time           
 they're trying to review royalty reduction requests.  It would be             
 done, I advise you, Mr. Chairman, in isolation.                               
 Number 228                                                                    
 CHAIRMAN ROKEBERG:  Okay, and, let's go onto another topic right              
 now.  The, you indicated earlier today that there had been a                  
 decision on the part of the commissioner in response to the                   
 question yesterday as to the full differential between new fields             
 and mature fields where we discussed and, correct me if I'm wrong,            
 that the commissioner would be amendable to a 25 percent of the bid           
 lease rate as a floor on new fields, and we had asked about                   
 removing any, or establishing any floor on, on more mature fields,            
 and he was to get back to us.  Do you have a response on that                 
 Number 245                                                                    
 MR. BOYD:  Yes, Mr. Chairman.  I talked to Commissioner Shively               
 early this morning.  He indicated to me that he wants the floor to            
 remain at 25 percent throughout the bill.                                     
 Number 252                                                                    
 CHAIRMAN ROKEBERG:  And it is, ....                                           
 REPRESENTATIVE DAVID FINKELSTEIN:  Mr. Chairman.                              
 CHAIRMAN ROKEBERG:  Representative Finkelstein.                               
 Number 253                                                                    
 REPRESENTATIVE FINKELSTEIN:  For the floor to remain at, I missed             
 the last part of that.  The commissioner wanted the floor to remain           
 Number 257                                                                    
 CHAIRMAN ROKEBERG:  Twenty-five percent if we're going to have a              
 floor at all.  Mr. Boyd, that leads to the next question.  If the             
 committee would remove any kind of floor at all, would there be an            
 Number 260                                                                    
 MR. BOYD:  Mr. Chairman, I can only say that Commissioner Shively             
 has said that he prefers the floor to stay at 25 percent.                     
 Number 264                                                                    
 CHAIRMAN ROKEBERG:  Could you, could check with him, I know you               
 have nothing else to do, but, do you?  If you can get through the             
 snow to your telephone in Anchorage, to find out if we were to                
 remove that provision in its entirety, would there be any heartburn           
 or problems with the commissioner?                                            
 Number 270                                                                    
 MR. BOYD:  Mr. Chairman, when you say, remove the provision in its            
 entirety, could you...?                                                       
 Number 271                                                                    
 CHAIRMAN ROKEBERG:  Remove the 25 percent floor.                              
 MR. BOYD:  (Indisc.) floor it would be zero in all cases.                     
 CHAIRMAN ROKEBERG:  Well, I just would, (indisc.) to give him the             
 full discretion.                                                              
 Number 273                                                                    
 MR. BOYD:  In other words, you could then have a zero royalty on              
 the nonproducing fields?                                                      
 CHAIRMAN ROKEBERG:  That would be the intended effect, yeah.                  
 MR. BOYD:  I, Mr. Chairman, I guess I speak to the commissioner               
 again.  I know I hesitate to do so, but I'm sure that will be                 
 CHAIRMAN ROKEBERG:  Well, the floor is my idea in the first place,            
 Ken.  Excuse me.                                                              
 MR. BOYD:  Mr. Chair, I'll tell you the floor (indisc.)...                    
 CHAIRMAN ROKEBERG:  Okay.                                                     
 MR. BOYD:  ... but by that number, 25 percent, to put the floor at            
 zero on a field that has not even been producing, which was                   
 probably have an ELF of zero, or a tax of zero, leaves you with               
 Number 283                                                                    
 CHAIRMAN ROKEBERG:  Well, if we make a distinction then and put no            
 floor in the CS, what you, his reaction be?  To object to it?                 
 Number 286                                                                    
 MR. BOYD:  That's my belief, Mr. Chairman.                                    
 Number 288                                                                    
 CHAIRMAN ROKEBERG:  Okay, you're, I think it's crystal clear what             
 you're saying, but we had to ask.  Thank you very much.  Mr. Boyd,            
 when you look at the existing regulations that have related to                
 Section J, there was some questions I believe that I showed you,              
 was it yesterday, the letter regarding the North Trading Bay                  
 application from Marathon Oil, and a response to Mr. Kukluff(sp),             
 I think it was March of, well, I don't know what year it was.  Then           
 there was a recitation of the statute and the regulations, and then           
 a list of the points that had to be made on an application from the           
 application.  Then I think I showed those to you.  I'm not sure you           
 had a chance to look at those; however, I'm very curious about that           
 because it seemed to me that the standards that were set forth in             
 the letter by then director, Mr. Eason, were higher than what was             
 required in the regulations.  Do you know what I'm talking about?             
 And could you comment on that?                                                
 Number 306                                                                    
 MR. BOYD:  Yes, Mr. Chairman, I believe it was the same.  Again,              
 there was references to two (indisc.) and two of them (indisc.)               
 with regulations.  I'm sure you'd be (indisc.) out, but I believe             
 that the first part of that, the request one set of regulations               
 that are pretty standard and talk about statement of facts,                   
 (indisc.) of facts by description, and then it goes into the other            
 statute, I beg your pardon, in the regulations, just stating that             
 you do not compile the data.  It just gives the list of the data              
 that you're supposed to provide.  Again, the director is saying,              
 here's the information I need to make my decisions.  I can't say              
 that this will go beyond anything, that's what he needs to make a             
 decision, I presume that's what he needs to make his decision.                
 Number 322                                                                    
 CHAIRMAN ROKEBERG:  Mr. Boyd, I appreciate if you could take a look           
 at this whole regulatory scheme because I have a concern about it             
 now and how it relates to the directing of our CS on this, because            
 the chair is contemplating adding adopting regulations back in                
 because I'm concerned about leaving any loose ends, so if, if you             
 want to avoid something like that, we need to take a look the                 
 regulations that would apply to this circumstances.  And I wish you           
 could take a look at those to give us some direction.  I think we             
 discussed this before because it seems to me if we leave, the                 
 existing regulations survive this, there is a process for a public            
 hearing.  There is also the aspect of confidentiality and then                
 there may be some other catchall regulations that may apply here.             
 Could you give me your opinion, kind of describe the whole public             
 process, hearing process and confidentiality as they relate to the            
 regulations, and how you see that unfolding?  It's a bad question,            
 Number 340                                                                    
 MR. BOYD:  I don't even know where to begin.  If you, you know, are           
 you asking me how, how you change regulations?  How you adopt                 
 Number 344                                                                    
 CHAIRMAN ROKEBERG:  No, how, what would happen if we didn't, like             
 the existing HB 207 deletes the reference to adopting regulations.            
 We have an existing set of regulations there that relate to the               
 sections, and in that it provides a laundry list of, of what has to           
 be done in the application.  Does that survive, or how does affect            
 the whole thing?                                                              
 Number 351                                                                    
 MR. BOYD:  Mr. Chairman, I, I simply don't know, that whole process           
 of law, or how law is made by regulations (indisc.).  I only recall           
 yesterday Commissioner Shively having his pledge that he would not            
 be overly burdensome with any requirements to provide data.  And if           
 that needs to be changed somehow, I just don't, I'm just not                  
 certain how to do that, but I assume you can do a statute or                  
 regulation.  In many ways I believe it is a statute that, that the            
 applicant really needs to that clear and convincing showing, and if           
 that's what you have to have, then I presume (indisc.) some things            
 you need to have to (indisc.) a convincing show.                              
 CHAIRMAN ROKEBERG:  Okay, Representative Finkelstein has a                    
 Number 363                                                                    
 REPRESENTATIVE FINKELSTEIN:  Well, just, the way I see this working           
 and I don't think there's any, could be the confusion around this             
 is that the new law passes, then the, as of that date, any                    
 regulation that is in conflict with that is no longer in effect.              
 The, undoubtedly, the, because this is how these things work, the             
 commissioner would at that point revise the regulations of, to, and           
 in the process of the two, you mentioned the confidentially,                  
 confidentiality, assuming the bill was as it is written here would            
 clearly have to be written, because it's a new standard.  Things              
 like public hearings are less clear because, you know, there may be           
 circumstances the commissioner believes the public hearing is                 
 appropriate.  It doesn't have to be a public hearing on the                   
 administrative procedures act, but it could well be, and I think it           
 will be a variety of other areas.  We, we've just never, in                   
 complicated areas like this, been ever, been able to pass a law               
 that covers all the details, 'cause we'd be at this table, you                
 know, until the end of the year.  And luckily, we turned that stuff           
 over to them and, and the process itself takes care of the                    
 nonconforming regulations.  They will be gone.  The day this passes           
 they will, they will no longer hold effect because the rule always            
 is that a regulation can't stand unless it has a statute to be                
 based on.                                                                     
 Number 383                                                                    
 CHAIRMAN ROKEBERG:  Thank you, Representative Finkelstein.  That              
 helps me a little bit here, but what I, I guess what I'm driving              
 at, Director Boyd, is that in order to avoid any problems, which I            
 think were revealed in the application at North Trading Bay, in my            
 opinion whereas the request for the application exceeded what I               
 thought were in existing regulations, on the one hand.  Or                    
 secondarily, the regulations as written required almost too much              
 information, that maybe we need to revisit the regulations is my              
 concern.  That's my concern.  And if we want to expedite the                  
 process perhaps we should speak to the statutorily and I'd just               
 like to have your opinion on that.  Maybe require you to go look at           
 the regulations, I understand.                                                
 Number 398                                                                    
 REPRESENTATIVE BETTYE DAVIS:  Mr. Chairman.                                   
 CHAIRMAN FINKELSTEIN:  Representative Davis.                                  
 REPRESENTATIVE B. DAVIS:  If you having a problem with the                    
 regulations, which you say that you are, then you address it in the           
 statute, then as Representative Finkelstein has said, the old                 
 regulations are going to go anyway, so you're going to promulgate             
 new regulations.  So, if you think that it needs to be identified             
 more clearly in, in the statute, then you would do that.  And, I              
 thought you were going to do that, you had said that you were, you            
 going to say what you require, make it more explicit so we wouldn't           
 have the problem that you have with the North Bay, or whatever the,           
 you cited.  I don't think that is a problem.                                  
 Number 408                                                                    
 CHAIRMAN ROKEBERG:  Well actually, Representative Davis, thank you            
 for putting that in such a way because actually the only problem I            
 have is I need some help from the, the commissioner's office to               
 help us with what we should put in the bill here.                             
 Number 410                                                                    
 REPRESENTATIVE B. DAVIS:  Right, but you see the commissioner's               
 office is not going to necessarily tell us what we should put in              
 there.  I think we're going to have to be the ones to do that.                
 They'll tell you how they feel about what you think you want to put           
 in there, but they're not going to say, well, you put it in there             
 because we're not going to do what they say necessarily, because we           
 might not necessarily agree with what the commissioner says.  We              
 might decide we want to do it another way.                                    
 Number 415                                                                    
 CHAIRMAN ROKEBERG:  Excellent.  Perfect.  That's exactly where I              
 want to be right now, if everybody has that understood.                       
 Number 418                                                                    
 REPRESENTATIVE FINKELSTEIN:  Well, Mr. Chairman, in the end we get            
 the final say...                                                              
 REPRESENTATIVE B. DAVIS:  Right.                                              
 REPRESENTATIVE FINKELSTEIN:  ...because in the interim if they                
 adopt regulations or enact policies that, you know, you don't                 
 believe address your concerns and your intent then you pass a new             
 law next year to straighten them out.                                         
 Number 422                                                                    
 CHAIRMAN ROKEBERG:  Very good, very good.  Let's see, does the,               
 well, I'm trying to figure, figure out another question so we can             
 get out of here.  Does anybody...                                             
 Number 424                                                                    
 REPRESENTATIVE B. DAVIS:  Before, before you go any farther, what             
 do you plan to do in your new CS that's going to address the                  
 problem where there was language that said the commissioner would             
 have the opportunity to address the royalties across the board, up            
 or down, at his discretion.  There was some discussion yesterday,             
 or some other day, that they said that it should be decided at the            
 time that they apply for the reduction.  Is that the way you're               
 going to put it in your new CS?                                               
 Number 430                                                                    
 CHAIRMAN ROKEBERG:  Yes, it is.                                               
 Number 432                                                                    
 REPRESENTATIVE B. DAVIS:  Okay, you will have that in committee.              
 'Cause I spoke with you on that yesterday.  You said you were                 
 thinking about...                                                             
 CHAIRMAN ROKEBERG:  Right.                                                    
 REPRESENTATIVE B. DAVIS:  ...doing that.  So you...                           
 Number 433                                                                    
 CHAIRMAN ROKEBERG:  If I'm not mistaken what we were thinking about           
 doing is stipulating our preference, if you will, without using the           
 right words, that we would establish, we would prefer that the                
 commissioner establish a sliding scale royalty based on price and             
 various other factors.                                                        
 Number 437                                                                    
 REPRESENTATIVE B. DAVIS:  But when you say sliding scale, are you             
 addressing individual lessees as they apply?                                  
 CHAIRMAN ROKEBERG:  Oh, yes.                                                  
 REPRESENTATIVE B. DAVIS:  And not something else.                             
 Number 439                                                                    
 CHAIRMAN ROKEBERG:  Absolutely.  Everything is discrete.                      
 Absolutely.  Every, every, and we're also going to add a provision            
 that gives the commissioner flexibility too.  You know, so we don't           
 tie his hands or, what we want to do is stipulate to our                      
 preference, but he does have a sliding scale.  And then the only              
 other thing is that we might, is the reopeners issue and how we're            
 going to fine tune that, and whether or not -- that becomes                   
 important because if you have a sliding scale situation the oil               
 prices and even the production levels can be taken care of                    
 formulaically(ph), but if you don't have a sliding scale you need             
 to stipulate that if there's an oil price increase or production              
 volume reserve increase, then there needs to be a reopener or                 
 something like that.  So, there's kind of two different things and            
 we just have to, that's the intent.  I think everybody agrees with            
 that.  It's just how you get it drafted in the language so it has             
 that effect.  Is there any other questions?  Representative                   
 Number 455                                                                    
 REPRESENTATIVE FINKELSTEIN:  Thank you, Mr. Chairman.  Mr. Boyd,              
 the, what is it in existing law that would protect us from a                  
 company that goes in, bids on a competitive lease, loses, their               
 competitor gets the lease, a few years down the road comes in to              
 get their, the terms changed under these provisions and then they             
 sue because, you know, they competed under the terms, previous                
 terms and didn't get the lease.  Is there anything that protects us           
 from that law suit?                                                           
 Number 462                                                                    
 MR. BOYD:  Mr. Chair and Representative Finkelstein.  I'm not a               
 lawyer, but from what I've been told this is not a, a right.  You             
 know, this is not something we're granting as a right.  It's                  
 something that is negotiated settlement.  The statute that a party            
 may sue as part of the negotiated settlement as opposed to a right,           
 I can't, I don't, I just don't know what the opportunity for a law            
 suit may or may not be.  But it seems to me that if it were a right           
 that was granted, if you had to do this that might be a different             
 situation from one where somebody comes (indisc. - coughing) given            
 a state deal, if a reason to negotiate a set of circumstances the             
 decision is made in a public forum.  Again, not being a lawyer, I             
 can't say it is not subject to legal action, but it seems to me               
 that it's much less likely to be subject to legal action.                     
 Number 476                                                                    
 REPRESENTATIVE FINKELSTEIN:  Well, this may be something we want to           
 get some legal opinion on 'cause it, I'm not an attorney either,              
 but on the face of it it seems like there's a problem.  If I'm out            
 competitively building, competitively bidding to build some sort of           
 building, I put in my bid for ten million, someone else get it for            
 nine million and it's a, you know, 400,000 square foot building,              
 and the next think I know it's a 300,000 square foot building, and            
 I would have bid less for that because they have revised downward             
 the standards, I'm going to be an aggrieved party and I certainly             
 didn't get an opportunity to bid on that.  It, it may be that, I              
 mean, it is a legal question and I don't know the answer to it, but           
 it's certainly something I think we ought to be concerned with.               
 There's probably solutions to it by making clear in the lease                 
 arrangement that it's subject to these provisions, and that's not             
 a, anyone who agrees to bid is giving up their right to later                 
 challenge based on that revision.                                             
 Number 492                                                                    
 MR. BOYD:  Mr. Chairman and Representative Finkelstein, I did give            
 to the chair a, a five point, the title of this is Nonappealability           
 Clause, and again, this is not an attorney general's opinion.  It             
 is the opinion of a single attorney general, assistant attorney               
 general.  I, I was just, well, I read one yesterday and perhaps               
 this is the most bombastic.  I was reading (indisc. - someone else            
 speaking into the microphone).  The Alaskan report has reserved the           
 limited rights to refuse nonappealable agency decisions to the                
 extent necessary to ensure that the agency action was not                     
 unconstitutional, that the agency was impartial and that procedure            
 followed was fundamentally fair.  And in the third point, again,              
 it's always the moral stuff, if the applicant or a third party can            
 show that DNR's decision flatly (indisc.) your federal                        
 constitution, or that DNR acted in a fundamentally unfair manner              
 (indisc. - sneezing) in the nonappealability clause, the court will           
 likely review this decision, or the decision process.  Again,                 
 Representative Finkelstein, I'm not sure that gives you 100 percent           
 comfort.  I'm not sure (indisc.) anything will.  But I believe that           
 there is some fundamental (indisc. - coughing) that there is some             
 protection.  You can't just frivolously appeal this and if it is a            
 well reasoned decision based on this law I would think it would be            
 very difficult to challenge unless, in fact, the process were                 
 fatally flawed.                                                               
 Number 511                                                                    
 REPRESENTATIVE FINKELSTEIN: Mr. Chairman, that issue, that's an               
 interesting one which I think relates to the issue of whether one             
 can appeal to the courts regardless of what's written to law, and             
 I don't, I haven't seen the opinion on that subject, but I'm                  
 interested in it.  The question I was getting at, which I, I guess            
 we can't answer at this point, is are we exposing ourselves                   
 unnecessarily, regardless of the right to appeal, are we exposing             
 ourselves to a challenge because we changed the terms after someone           
 else has bid it competitively.  And I, I don't believe it's                   
 necessarily a problem in the future because I'm sure you'll put               
 into make it part of the competitive leasing that these, you are,             
 any company that bids on these is bidding on these, you know,                 
 reflecting that the standards and law applies, it's self evident              
 that they could be reduced in the future, but to go and apply this            
 to existing leases where someone bid under terms that were                    
 different than these I their, it raises a question as to whether it           
 could be successfully challenged.  I don't know if it's worth                 
 getting an attorney general opinion, or legal affairs opinion on              
 that or not, but I, I certainly think that is the most likely,                
 besides the company themselves, that they don't get the approved              
 royalty reduction, but in the case of an approved royalty                     
 reduction, the most likely person to challenge it is going to be              
 the entity that lost the original bidding.                                    
 Number 535                                                                    
 CHAIRMAN ROKEBERG:  Thank you, Representative Finkelstein.  I'd               
 like to just state that I share your concerns in that area.  That's           
 what I've been calling the integrity of the bidding process issue             
 that's really kind of parallel and collateral to this and we really           
 don't speak to it in the bill, but there's, it's an implicit                  
 concern here and....  Director Boyd, we have had this conversation,           
 let me state my proposition and you can respond to it.  Would you             
 think that limiting the criteria for the types of bids in the                 
 future would be, would have any positive effect?  I know under                
 existing statute the commissioner has the ability to design                   
 different types of bids, including one with a, the royalty being a            
 variable.  If we were to change the statute to limit future bids to           
 say 12.5 percent the customary royalty and allow such, and limit              
 that, and then they, and, of course, you have the other variables.            
 I've even heard a rumor about a sliding scale royalty scheme, at              
 any rate, but do you think that would have any, would that help us            
 in any way in terms of this integrity of bidding process that                 
 Representative Finkelstein is talking about?                                  
 Number 554                                                                    
 MR. BOYD:  No, I see no way at all would that solve the problem.              
 I mean, I don't see, why would that, first of all, then, then                 
 you've taken away the ability of the state.  Let's say there's a              
 discovery made in the Western Beaufort(?), just for the sake of               
 example.  It's a new geological (indisc.) and let's say, let's add            
 to it that the price of oil goes up.  When we now limited ourselves           
 to 12.5 percent royalty when, in fact, (indisc.) third replacer bid           
 or 25 percent might be much more appropriate.  (Indisc.) In any               
 case, if you, if you limit the royalty to 12.5 percent we still               
 have a royalty reduction bill and I presume this, after they're               
 going to want to reduce I don't see how (indisc.) whatsoever.                 
 Number 563                                                                    
 CHAIRMAN ROKEBERG:  It was, the challenge I guess was, in terms of            
 the bidding process I guess is what I was talking about.  And                 
 generically, in other words, if you had a variable as a royalty a             
 firm could bid above the 12.5 percent standard minimum royalty and            
 then come and pray for a reduction under Section J somewhere down             
 the road, is what I'm getting at.  Like the old 'bait 'n' switch'             
 is what I'm driving at.                                                       
 Number 570                                                                    
 MR. BOYD:  Well, Mr. Chairman, they've been coming in now at 12.5             
 percent and ask for a royalty reduction.  I don't, I don't, I would           
 not like that flexibility (indisc. - coughing).                               
 Number 571                                                                    
 CHAIRMAN ROKEBERG:  Okay, well that, that answers that question,              
 doesn't it?  Okay.  Thank you.  Representative Finkelstein.                   
 Number 573                                                                    
 REPRESENTATIVE FINKELSTEIN:  Thank you, Mr. Chairman.  Mr. Boyd, I,           
 I'm not sure I understand what it means, page two, line 28, where             
 we refer to a delineated field.  It gets used a lot and I think               
 you, you know what it means, you know what it means to you, what              
 would you, how would you describe the degree of delineation                   
 necessary to call a field delineated field?                                   
 Number 579                                                                    
 MR. BOYD:  Representative Finkelstein, let me just deal more with             
 (indisc.) rather than the something that you can just stand by                
 something.  Each field will, will vary slightly as to how they,               
 what, what degree of liniation that they need.  But I think in a              
 simple term, it, it's (indisc.) would it be done, and would involve           
 perhaps seismic dimensional seismic three, dimensional seismic and            
 the drilling of some number of wells.  And I think it would be a              
 standard that a prudent operator would actually go forward with               
 development.  I think what happens is if, let's say (indisc.)                 
 drills, let's say for the sake of argument, three wells and some              
 seismic (indisc. - coughing) on this particular field, and they               
 come in for a royalty reduction.  As part of the negotiation for              
 the royalty reduction I believe the commissioner could decide that            
 this part of the field where the wells are and could certainly                
 extend to where the (indisc.) seismic is, is sufficiently                     
 delineated that we can grant the royalty reduction on the lease               
 covered.  But perhaps, perhaps on the very edges of the field where           
 the seismic is perhaps of poorer quality or is equivocal, you might           
 not grant a royalty reduction, although you might say, if you do X            
 amount of work, then we'll see if the field is to be delineated.              
 So, again, it's a bit of a term of art.  I believe it enters into             
 the negotiation as to whether royalty reduction is warranted.                 
 Number 596                                                                    
 REPRESENTATIVE FINKELSTEIN:  Well, Mr. Boyd, how could you grant a            
 royalty reduction on one side of this field and not on the other?             
 Number 598                                                                    
 MR. BOYD:  Mr. Chairman, Representative Finkelstein.  You could,              
 you're given the ability of this, of this legislation to grant this           
 oil lease (indisc.).                                                          
 Number 600                                                                    
 CHAIRMAN ROKEBERG:  For a pool by pool bed.                                   
 Number 601                                                                    
 REPRESENTATIVE FINKELSTEIN:  If, if, let's say we had, these things           
 are hard for me to visualize, but let's say we had a spot, there's            
 a, you know, sort of, some sort of strike (indisc.), there's                  
 delineation kind of wells on three sides of it and the fourth side            
 of it isn't know.  Okay, it could be relatively small, or could               
 extend out some great degree, that part that isn't known.  Is that            
 a delineated field?                                                           
 Number 607                                                                    
 MR. BOYD:  Mr. Chairman, again, that, the statement of (indisc.)              
 two gentlemen, you say that you know that three-quarters of the               
 field, and understand three-quarters of the field, understand them,           
 yes, I would say it is lineated.  As to the last quarter or last              
 piece as far as lineated, the answer is no.  You would then                   
 determine which leases, through this process, are delineated and,             
 you know, and then negotiate the, the royalty reduction contract,             
 if you like, and exclude those portions of the fields that the                
 commissioner's decision says are probably delineated.  I mean, yes,           
 it can be on individual leases.                                               
 Number 615                                                                    
 REPRESENTATIVE FINKELSTEIN:  Well, I somehow see that as, in my               
 poor understanding of what, the drama here, is in conflict with               
 what's in this particular sentence because we're talking about only           
 allowing this in a lineated field, not, you know, delineated                  
 portion of a field, or delineated subdivision that's the site of              
 the lease.  You have to make the decision that feels delineated,              
 and the reason, of course, is it affects the viability of the whole           
 field.  I mean, how big it is.                                                
 MR. BOYD:  Mr. Chairman.                                                      
 Number 623                                                                    
 CHAIRMAN ROKEBERG:  Mr. Boyd, if I could interject right here I               
 might even cloud the issue a little further, but I think it's                 
 appropriate to let everybody know.  We have a definition, a working           
 definition of field right now that may impact on Representative               
 Finkelstein's question.  In, do, to read the portion of it, it says           
 "...to allow for production from a delineated but not previously              
 produced field, pool or portion of a field or pool that would not             
 otherwise be economically feasible."  Well, we've that to take in             
 the horizon concept and allow these different stratums and so forth           
 to be considered, you know, in a proper basis like West Sak above             
 Kuparuk and all that stuff, so.  And, but nevertheless, I agree               
 with Representative Finkelstein, and if you will allow me,                    
 Representative Finkelstein, just to, I, I really agree with his               
 concern and would ask, you indicate the delineate as a term of art,           
 but would, are there any modifiers like, you use the word                     
 sufficiently, or wholly, or completely delineated that would be,              
 would tighten up that language any?                                           
 Number 639                                                                    
 MR. BOYD:  No, Mr. Chairman.  I don't believe so.  I'd like to say            
 something first.  On page three, line three, it specifies                     
 individual leases more than anything clear (indisc.).                         
 Number 642                                                                    
 CHAIRMAN ROKEBERG:  Let's see now.  Could you give me the line                
 again there?  Oh, on line three, page three?                                  
 Number 643                                                                    
 MR. BOYD:  Yes.  "...to allow reduction of royalty on individual              
 leases or leases unitized..." etcetera.                                       
 Number 644                                                                    
 CHAIRMAN ROKEBERG:  Is that a conflict with our redefinition of               
 field then?                                                                   
 MR. BOYD:  It is not.                                                         
 CHAIRMAN ROKEBERG:  It is not.  So, that's okay?                              
 MR. BOYD:  Um-hmm.                                                            
 Number 645                                                                    
 CHAIRMAN ROKEBERG:  Okay, so, what's the point there then?  So I              
 understand that.                                                              
 Number 646                                                                    
 MR. BOYD:  I believe the point is that you can, you can make the              
 decision on a lease by lease basis whether something is delineated            
 or not.                                                                       
 Number 648                                                                    
 CHAIRMAN ROKEBERG: Oh, I see.  In other words, you could have a               
 huge field, but you'd have one lease inside the field, and then               
 you'd know that area was delineated.                                          
 Number 649                                                                    
 MR. BOYD:  That's correct.                                                    
 CHAIRMAN ROKEBERG:  Is that, is that what you're saying.  Yeah.               
 Number 650                                                                    
 REPRESENTATIVE FINKELSTEIN:  Mr. Chairman, I find this all to be              
 illuminating, though not reassuring because I, I know when the                
 commissioner has described the steps under this bill approve this,            
 he's, he said, number one, it's got to be a delineated field.                 
 Number two, it's, what is the second one?  I, forget the second               
 one.  Number three is it has to be in the, you know, meet the best            
 interest finding.  That those three considerations will have to               
 always be made.  Actually, what is that second, second hurdle?                
 What am I forgetting, do you know, Mr. Boyd?                                  
 Number 657                                                                    
 MR. BOYD:  Well, Mr. Finkelstein, I just couldn't quite hear the              
 Number 660                                                                    
 REPRESENTATIVE FINKELSTEIN:  Well, the, what are the three, the               
 commissioner was describing the terminations he has to make on this           
 and he said, number one, he's got to determine it's a delineated              
 field.  Number two escapes me, and number three is he's got to make           
 the best interest finding.  What's the, what's the other                      
 determination you have to make before allowing the royalty                    
 CHAIRMAN ROKEBERG:  They need the relief.                                     
 Number 663                                                                    
 REPRESENTATIVE B. DAVIS:  Economics feasible.                                 
 CHAIRMAN ROKEBERG:  Yeah.                                                     
 REPRESENTATIVE B. DAVIS:  That's what it says.                                
 CHAIRMAN ROKEBERG:  Economic feasibility.  Is that right?  Does               
 Number 664                                                                    
 REPRESENTATIVE FINKELSTEIN:  Well, I, I'd assume that to be part of           
 the best interest, the finding, but maybe that's another....  Okay,           
 if that's, if that's, my point I'm getting at is that the, this               
 delineated, whether or not it's delineated field, but the                     
 definition I'm, you know, coming to understand now from you,                  
 basically, doesn't make that much of a standard because you could             
 conclude, even enough for one lease, if it's clear enough in that             
 area that there's a, it's delineated in some sense that there's a             
 well there.  That is certainly the understanding I have from the              
 English use of the word, not the industry use of the word.  The               
 English use of the word is, delineated means, you know the limits             
 of the field.  You know, it, you know, which direction (indisc. -             
 coughing) side of it to see that it doesn't head beyond a certain             
 limit and you set, you understand where it is, so that when you're            
 making a decision on what's an appropriate relief you have a very             
 good idea that, and the company has, you know, made a significant             
 investment, that this occurs at a point where it isn't just trying            
 to reduce a, a tax burden.  It's, it's gone far enough in the                 
 process that they've made their investment and now we're, we're               
 trying to determine how we can encourage further activity.  The               
 count off(?).  The standard you are using doesn't sound like it               
 would have to be much at all, if there was even just a well or two            
 on one side that you could decide that somehow that field was                 
 Number 684                                                                    
 MR. BOYD:  Mr. Chairman, I can only think from my experiences, both           
 the geologists and the geophysicists and exploration for fifteen              
 years, that this is, this is something that is done all the time.             
 We do it here today just as we have for many years.  It is, I, I              
 admit difficult perhaps to explain it, what's taking place since              
 there's no bright light sometimes.  With delineation to a                     
 professional, to technical professionals, it's fairly clear, and I            
 don't think we're in conflict with the definition you gave                    
 delineation because as I said, as you reach the edge where you can            
 no longer delineate it, I mean, if you consider the delineation to            
 be the small subset.  Anything inside that subset is lineated and             
 anything outside that subset we don't think is lineated is                    
 (indisc.).  And again, (indisc.) technical valuation of the                   
 geological and geophysical engineering data to make that                      
 determination by, again, technical professionals, geologists,                 
 geophysicists, and we do it I'll say routinely.                               
 Number 696                                                                    
 CHAIRMAN ROKEBERG:  Mr. Boyd.  To follow on that point, is there,             
 in the accounting game they have like general accepted accounting             
 principles, is there anything like that would maybe be applicable             
 here, like generally accepted petroleum engineering principles or             
 Number 698                                                                    
 MR. BOYD:  No, Mr. Chairman, not to my knowledge.  Again, the                 
 royalty reduction is in so many, many parts not including just the            
 geology, but also the economics and, and the company's finances and           
 many other things.                                                            
 CHAIRMAN ROKEBERG:  No, I mean delineation here.  We just (indisc.)           
 delineation here.  I mean....                                                 
 Number 701                                                                    
 MR. BOYD:  No, Mr. Chairman.  To my knowledge, there is no, there             
 is no bright line where something is really delineated or really is           
 not.  I suppose if you drill the well every ten feet, you know,               
 we'd have an absolute certainty of what's going on.  But the                  
 (indisc.) seismic and a sufficient number of wells, you can                   
 determine if something is delineated.                                         
 Number 706                                                                    
 CHAIRMAN ROKEBERG:  Just for the information of the audience, it's            
 come to my attention that, for example, the Badami field on the               
 North Slope is, well, it's going to have three so-called                      
 delineation wells, that there is an additional six wells that were,           
 been drilled around nearby with large amounts of geophysical data             
 that went with those wells as well as significant geophysical                 
 exploration in that area in terms of trying to "delineate."                   
 TAPE 95-14, SIDE B                                                            
 Number 000                                                                    
 CHAIRMAN ROKEBERG:  ...line three that three wells wasn't going to            
 be adequate to delineate and they provided this additional                    
 information, which I thought was, you know, pretty satisfactory               
 answer 'cause there was empirical evidence, in this whole                     
 geographic area there's enough, enough holes punched in the ground            
 and enough work done on it that, to truly delineate it, because I             
 was a little bit skeptical about three wells delineating in a                 
 field, so.  I would suggest, Mr. Boyd, if you have any further                
 ideas on this regard, and if anybody in the audience or out there             
 TD(?) land, or wherever, has any ideas, please let us know.  Is               
 there any other questions of Mr. Boyd at this time?  With that, I             
 want to thank everybody for coming on a Friday evening and I would            
 like to thank Mr. Boyd.  I know there's a snow storm there, and I             
 promise to make sure that Bill Van Dyke stays out of trouble this             
 weekend, and hope that, hope that we keep, stop having you twist in           
 the wind and get this done by next week so we can more it along,              
 and thanks a lot, Ken.                                                        
 MR. BOYD:  Thank you, Mr. Chairman.                                           
 CHAIRMAN ROKEBERG:  And this is, my meeting is adjourned.  Thank              
 you, everybody.  5:56 p.m.                                                    

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