Legislature(1997 - 1998)
03/24/1998 05:06 PM O&G
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON OIL AND GAS March 24, 1998 5:06 p.m MEMBERS PRESENT Representative Scott Ogan Representative Norman Rokeberg Representative Joe Ryan Representative Con Bunde Representative Tom Brice Representative J. Allen Kemplen MEMBERS ABSENT Representative Mark Hodgins, Chairman COMMITTEE CALENDAR HOUSE BILL NO. 393 "An Act relating to contracts with the state establishing payments in lieu of other taxes by a qualified sponsor or qualified sponsor group for projects to develop stranded gas resources in the state; providing for the inclusion in such contracts of terms making certain adjustments regarding royalty value and the timing and notice of the state's right to take royalty in kind or in value from such projects; relating to the effect of such contracts on municipal taxation; and providing for an effective date." - HEARD AND HELD (* First public hearing) PREVIOUS ACTION BILL: HB 393 SHORT TITLE: DEVELOP STRANDED GAS RESOURCES SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR Jrn-Date Jrn-Page Action 2/11/98 2280 (H) READ THE FIRST TIME - REFERRAL(S) 2/11/98 2281 (H) OIL & GAS, FINANCE 2/11/98 2281 (H) 2 FISCAL NOTES (DNR, REV) 2/11/98 2281 (H) GOVERNOR'S TRANSMITTAL LETTER 2/19/98 (H) O&G AT 11:00 AM CAPITOL 124 2/19/98 (H) MINUTE(O&G) 2/24/98 (H) O&G AT 10:00 AM CAPITOL 124 2/24/98 (H) MINUTE(O&G) 2/26/98 (H) O&G AT 10:00 AM CAPITOL 124 2/26/98 (H) MINUTE(O&G) 3/03/98 (H) O&G AT 10:00 AM CAPITOL 124 3/03/98 (H) MINUTE(O&G) 3/05/98 (H) MINUTE(O&G) 3/09/98 2578 (H) RES REFERRAL ADDED 3/10/98 (H) O&G AT 10:00 AM CAPITOL 124 3/10/98 (H) MINUTE(O&G) 3/12/98 (H) O&G AT 10:00 AM CAPITOL 124 3/12/98 (H) MINUTE(O&G) 3/19/98 (H) O&G AT 10:00 AM CAPITOL 124 3/19/98 (H) MINUTE(O&G) 3/24/98 (H) O&G AT 10:00 AM CAPITOL 124 3/24/98 (H) MINUTE(O&G) 3/24/98 (H) O&G AT 5:00 PM CAPITOL 124 WITNESS REGISTER JOHN SHIVELY, Commissioner Department of Natural Resources 400 Willoughby Avenue, 5th Floor Juneau, Alaska 99801 Telephone: (907) 4532400 POSITION STATEMENT: Testified on CSHB 393(O&G). PATRICK CARTER, Legislative Assistant to Representative Hodgins Alaska State Legislature Capitol Building, Room 110 Juneau, Alaska 99801 Telephone: (907) 465-2283 POSITION STATEMENT: Testified on CSHB 393(O&G) ACTION NARRATIVE TAPE 98-27, SIDE A Number 0001 VICE-CHAIR CON BUNDE called the House Special Committee on Oil and Gas meeting to order at 5:06 p.m. Members present at the call to order were Representatives Bunde, Ogan, Rokeberg, Ryan, Bunde, Brice and Kemplen. HB 393 - DEVELOP STRANDED GAS RESOURCES Number 0073 VICE-CHAIR BUNDE announced the committee would continue to hear HB 393, "An Act relating to contracts with the state establishing payments in lieu of other taxes by a qualified sponsor or qualified sponsor group for projects to develop stranded gas resources in the state; providing for the inclusion in such contracts of terms making certain adjustments regarding royalty value and the timing and notice of the state's right to take royalty in kind or in value from such projects; relating to the effect of such contracts on municipal taxation; and providing for an effective date." He stated that the committee would continue to hear Representative Ryan's amendments. Number 0115 REPRESENTATIVE JOE RYAN made a motion to adopt Amendment 7, 0- GH2006\B.11, which reads: Page 13, line 10, following "royalty": Insert "on gas" Page 13, following line 31: Insert a new subsection to read: "(d) Nothing in the chapter permits modification of the state's rights that relate to timing, notice, and rights to receive oil royalty in kind or in value under oil and gas leases or unit agreements." VICE-CHAIR BUNDE objected for discussion purposes. Number 0137 REPRESENTATIVE RYAN stated that the commissioner is given the authority to make concessions (INDISC. -- STATIC ON TAPE). Number 0246 JOHN SHIVELY, Commissioner, Department of Natural Resources, stated that they did not have an objection to the amendment. He stated that Representative Ryan is correct, it does separate out gas from oil. Number 0227 REPRESENTATIVE SCOTT OGAN made a motion to consider an amendment to Amendment 7; on page 13, line 9, delete "oil and". Number 0312 REPRESENTATIVE NORMAN ROKEBERG objected. COMMISSIONER SHIVELY stated that it is correct as written because the leases are oil and gas leases. Representative Ryan is trying to make sure that the royalty on the oil part of that is not dealt with. REPRESENTATIVE OGAN withdrew his amendment. REPRESENTATIVE RYAN stated that no one has really gone to look for gas yet (INDISC.-- STATIC ON TAPE). Number 0380 VICE-CHAIR BUNDE removed his objection. He asked if there was a further objection, hearing none, Amendment 7 was adopted. Number 0393 REPRESENTATIVE RYAN made a motion to adopt Amendment 8, 0- GH2006\B.12, which reads: Page 13, lines 20-23 Delete all material and insert: "(4) the modification does not impair the ability of the state to meet the demand in this state for gas during the term of the contract entered into under AS 43.82.020." VICE-CHAIR BUNDE objected for discussion purposes. Number 0443 REPRESENTATIVE RYAN stated that the demand for gas in the state be ensured in the bill. He stated that seven-eights of the gas would belong to the producer and one-eighth, the states royalty share, is allowed to be committed long term. He stated that there is nothing specific that says the gas will be made available for in-state use. Number 0522 REPRESENTATIVE OGAN stated that to be technically correct, Amendment 8, on line 4, the words "entered into" should be changed to "developed". Number 0612 REPRESENTATIVE ROKEBERG asked why he chose not to use the words in the existing subsection and is deleting in regard to the ability of the approved pipeline project to meet the demand rather than the state. Number 0612 REPRESENTATIVE RYAN replied (INDISC.-- STATIC ON TAPE) he is trying to ensure that there is gas for the people. Number 0697 REPRESENTATIVE ROKEBERG stated that he thought the thrust of the amendment was to delete the concept of economic proximity, he asked what his driving point was. (INDISC.-- STATIC ON TAPE) Number 0739 REPRESENTATIVE RYAN stated that he wants the state to be able meet the demands. He stated that he did not want this to be entered into on a long term contract and not have any gas for in-state use. Number 0765 REPRESENTATIVE ROKEBERG stated that he agreed with the intent. He referred to page 13, subsection (4) (INDISC -- STATIC ON TAPE). Number 0818 COMMISSIONER SHIVELY stated that they talked about making gas availabe on page 9, line 7. He stated that the state is one possibility but in Cook Inlet royalty gas is not used, it comes out of the private sector. In the future royalty gas may be used. Amendment 8 requires the state to do this and the administration wanted a broader interpretation to say that a qualified project would provide for it, how it is provided can fall under a number of options. Number 0905 REPRESENTATIVE ROKEBERG stated that he had a conceptual amendment on page 13, line 20-23, to insert "or the state" after "qualified project" and delete, "within economic proximity of the project". Number 0976 REPRESENTATIVE RYAN stated that Dr. van Meurs gave the price of $3.50 on the Pacific Rim versus $1.00. He stated that the economics of this may work out that the same quality gas may only be worth $1.00, which would mean there would be more money to be made in exporting the gas to the Pacific Rim (INDISC. -- STATIC ON TAPE). He stated that his point is to have gas available in-state. VICE-CHAIR BUNDE asked "if he saw a possibility that sets the demand in the state for gas that would give rise to demands from Western Alaska, that the state build a gas pipeline on the West Coast." Number 1085 REPRESENTATIVE RYAN replied that at the present time he did not. VICE-CHAIR BUNDE asked if this would set it up so that Bethel could file suit and say that the state has to build them a pipeline and provide them with gas. Number 1100 COMMISSIONER SHIVELY stated that is the department's concern, by deleting the words "economic proximity" because Bethel could ask for gas to be set aside in the event that they may need it someday. He stated that the term is in there to state that if the gas could be economically provided, it would be. Number 1125 REPRESENTATIVE ROKEBERG said, "that unless proximity meaning Cook Inlet in the general definition section then I have a problem if that is what he meant. Number 1146 VICE-CHAIR BUNDE stated that economic proximity is defined in definition. Number 1153 COMMISSIONER SHIVELY stated that it is the feeling that Anchorage could be economical if someone was willing to purchase and transport the gas into that market. Number 1172 VICE-CHAIR BUNDE asked if he understood correctly, that a project manager would do this for the state. Number 1153 COMMISSIONER SHIVELY stated that industry would have to come forward to be willing to make a deal, up-front before a line is constructed. Number 1223 REPRESENTATIVE OGAN asked if on page 13, line 21, the words "or the state" were added after qualified project and "within economic proximity of the project" was then left in, would that address the concerns. He moved that be considered as an amendment to Amendment 8. Number 1282 REPRESENTATIVE RYAN agreed. Number 1292 REPRESENTATIVE ROKEBERG stated that he agreed with it. COMMISSIONER SHIVELY replied that would be fine. VICE-CHAIR BUNDE asked if there was an objection to the amendment to Amendment 8. Hearing none, it was so ordered. He asked if there was an objection to Amendment 8, as amended, hearing none Amendment 8, as amended was adopted. Number 1335 REPRESENTATIVE RYAN made a motion to adopt Amendment 9, 0- GH2006\B.13, which reads: Page 13, line 24: Delete "Notwithstanding any contrary" Insert "Subject to the" VICE-CHAIR BUNDE objected for discussion purposes. Number 1357 REPRESENTATIVE RYAN stated that this paragraph in the bill gives the commissioner of natural resources the authority to develop any terms for royalty (INDISC. -- STATIC ON TAPE). He stated that there already are provisions. He stated that we would be chopping up the state's one-eighth of the royalty share. Number 1413 COMMISSIONER SHIVELY stated that the amendment would negate the section. He stated that this is talking about a valuation method as there has been substantial litigation, but the purpose of the paragraph is that the commissioner of revenue will come up with a system for how the valuation is arrived at. He stated that the same valuation method would be used for the royalty. He stated that the language that the amendment would delete, is needed. He stated that if the legislature does not believe the departments should have that flexibility then the whole paragraph should be deleted. Number 1483 VICE-CHAIR BUNDE asked if these provisions, between the two commissioners and the affected parties, would come before the legislature for approval. Number 1495 COMMISSIONER SHIVELY stated that was correct. If the legislature thought that the valuation method chosen for royalty was incorrect, and thought that the state's fair share of royalty was going to be given away, then the legislature would have the right to object. He explained that this was different from HB 207. Number 1528 REPRESENTATIVE RYAN stated that Kuwait is about the same size of Alaska and has about amount of oil and they get 88 percent royalty and Alaska receives 12 percent. (INDISC. -- STATIC ON TAPE) He stated that Alaska is getting the short end of the stick. Number 1628 COMMISSIONER SHIVELY stated that it needs to be kept in mind that Kuwait is a country and Alaska is a state. The state gets its take which is the royalty and some taxes and the federal government gets its take on top of that. He stated that the take off of the oil field is much more than 12.5 percent. Number 1652 REPRESENTATIVE OGAN asked if the amendment would be subject to AS 38 which precludes making any adjustments on royalties. Number 1669 COMMISSIONER SHIVELY stated that is correct, it negates the section. Number 1679 REPRESENTATIVE OGAN asked that under the other provisions of the bill, we are allowing the state to make adjustments on a lot of other oil and gas taxes (INDISC. -- STATIC ON TAPE). He asked if it is enough of an incentive or does basis royalty needs to be looked at. Number 1742 COMMISSIONER SHIVELY stated that in the tax section it is definitely talking about changing the taxes themselves, either by elimination or combining, etc. He stated that in this section it is not talking about changing the royalty itself but the valuation method. He stated that it is true that with substantial changes to a valuation method the amount that the state gets changes, but the royalty would still be 12.5 percent. Number 1769 REPRESENTATIVE OGAN asked about the evaluation method. Number 1784 COMMISSIONER SHIVELY stated that it starts with a price and then deduct costs from that, (INDISC.-- STATIC ON TAPE). Number 1815 REPRESENTATIVE OGAN asked if the tax and a transportation costs are high then there could be the possibility (INDISC. -- STATIC ON TAPE). Number 1850 COMMISSIONER SHIVELY stated that if a commissioner negotiated a valuation system that guaranteed the 12.5 percent royalty was zero and the legislature did not catch it, it would be a problem of public trust. He stated that the royalty should be left as is because of the situation of no basic value. He stated that a commissioner who negotiated away a whole royalty based on changing the valuation system would be violating the legislature (INDISC. -- STATIC ON TAPE). Number 1889 REPRESENTATIVE RYAN talked about the difference of the valuation systems on the same products in different countries (INDISC. -- STATIC ON TAPE). He stated that we are dealing with the potential of 34 trillion cubic feet of discovered gas. He stated that there are a lot of problems in setting up two commissioners to set out methodology of valuing the figures in relation to a contract that has yet to be negotiated with the buyer. He stated that he is uncomfortable and we are giving away a lot of authority. He stated that he is concerned about the end result (INDISC. -- TAPE STATIC). Number 2011 COMMISSIONER SHIVELY responded that if litigation were to occur the settlements are negotiated in confidence and the legislature would not be involved. He stated that this gives the legislature an opportunity to see the valuation method up-front. Number 2044 REPRESENTATIVE OGAN stated that he would like future legislators to scrutinize the valuation method. Number 2087 VICE-CHAIR BUNDE called for a roll call vote. Representatives Ryan and Ogan voted in favor of Amendment 9. Representatives Brice, Bunde, Kemplen and Rokeberg voted against Amendment 9. Amendment 9 failed. Number 2096 REPRESENTATIVE RYAN made a motion to adopt Amendment 10, 0- GH2006\B.14, which reads: Page 16, following line 1: Insert a new section to read: "Sec. 43.82.235. Contract term relating to a project labor agreement. The commissioner shall include in a proposed contract submitted to the legislature for approval under AS 43.82.200 a term that requires the qualified sponsor or qualified sponsor group and contractors of the qualified sponsor or qualified sponsor group to develop and enter into a project labor agreement with appropriate collective bargaining organizations for the project." VICE-CHAIR BUNDE objected for discussion purposes. Number 2132 REPRESENTATIVE RYAN stated that it is the only way to ensure Alaskan hire (INDISC.-- STATIC ON TAPE). Number 2187 VICE-CHAIR BUNDE stated that he supported the concern but did to feel that it would be a fix (INDISC. -- STATIC ON TAPE). Number 2223 REPRESENTATIVE TOM BRICE stated that a one year eligibility requirement is the least we can do. He stated that this amendment could address a lot of the ills that have occurred through the pipeline (INDISC.-- STATIC ON TAPE). He stated that putting the project labor agreement in the bill is not all that bad. Number 2307 REPRESENTATIVE OGAN stated that it is something that the private sector should make the decision on and it is something that he is going to be voting against. Number 2368 VICE-CHAIR BUNDE asked for a roll call vote. Representatives Brice, Kemplen and Ryan voted in favor of Amendment 10. Representatives Bunde, Ogan and Rokeberg voted against Amendment 10. Amendment 10 failed. COMMISSIONER SHIVELY made the suggestion that Amendments B.15-B.17 be incorporated into one amendment as the department does not have an objection to them. Number 2377 REPRESENTATIVE RYAN made a motion to adopt Amendment 11, 0- GH2006\B.15-17. Number 2399 REPRESENTATIVE ROKEBERG objected and stated that he is not sure about version B.17 and asked for an explanation. Number 2414 REPRESENTATIVE RYAN stated that he does not know what the Budget and Audit committee does because he is not a member. He stated that it will be making momentous decisions (INDISC. -- STATIC ON TAPE). He stated that he would like to be informed as to what is going on. He stated that deals are being made and money is being given away and as an elected official he is not going to be made privy to that. TAPE 98-27, SIDE B Number 0011 VICE-CHAIR BUNDE stated that all members of the legislature are welcome to attend as the executive sessions were never meant to exclude the legislature, it is only excluding members of the public. Number 0030 REPRESENTATIVE ROKEBERG stated that he only room big enough to hold each house of the legislature is the house chambers. He objected to combining Amendment, 0-GH2006\B.17 in Amendment 11. Number 0060 VICE-CHAIR BUNDE asked if there was an objection to 0-GH2006\B.15 and B.16. Hearing none, Amendment 11 was adopted which reads: Page 19, line 5, following "Law,": Insert "to the legislature," Page 19, line 10, following "Law,": Insert "the legislature," Page 19, line 15: Delete "may be disclosed" Insert "shall be disclosed on request" Number 0087 VICE-CHAIR BUNDE stated that Amendment 12,0-GH2006\B.17 was now before the committee which reads: Page 21, line 26: Delete "the Legislative Budget and Audit Committee" Insert "each house of the legislature in executive work session" Page 21, line 27: Delete "the committee" Page 21, line 29: Delete "the Legislative Budget and Audit Committee" Insert "a house of the legislature" Page 21, line 30: Delete "the committee" Insert "that house of the legislature" Delete "the committee's" Insert "that house's" Page 21, lines 30-31: Delete "and all members of the legislature" Page 22, lines 9-10: Delete "Legislative Budget and Audit Committee under AS 43.82.410(3)" Insert "legislature" Number 0092 REPRESENTATIVE OGAN stated that if it is referring to the House during the regular session then the decisions (INDISC.--STATIC ON TAPE). He asked if it would be cumbersome for the House as a whole to meet during executive session. Number 0132 REPRESENTATIVE RYAN responded that it would reflect that everybody is welcome. He asked everybody may not want to attend but at least everybody has the opportunity. Number 0179 VICE-CHAIR BUNDE stated that in previous meetings it has been pointed out the legislature is invited to the executive sessions and were required to sign a nondisclosure agreement. Number 0198 REPRESENTATIVE OGAN asked how it would be referred to the legislature, would it be through the committee process. Number 0226 REPRESENTATIVE RYAN replied that if it is presented to the legislature during executive session. The body would have the opportunity to attend and not have to pay the price of the airline ticket to do so. Number 0289 REPRESENTATIVE ROKEBERG stated that he appreciated Representative Ryan's intent and agrees with him. He stated that he would ask that the committee adopt by reference the entire record of HB 207 on this subject. Number 0383 VICE-CHAIR BUNDE asked for a roll call vote. Representatives Brice, Ogan and Ryan voted in favor of Amendment 12. Representatives Bunde, Kemplen and Rokeberg voted against Amendment 12. Amendment 12 failed. Number 040 VICE-CHAIR BUNDE made a motion to adopt Amendment 13 which is a technical amendment that reads: Refers to Page 18, line 26 of the CS Amendment 1, page 4, line 12 - following "public disclosure or" Insert "public disclosure" Refers to Page 18, Line 30 of the CS Amendment 1, page 4, line 17 - Following "information" Delete "and" Insert "or" Number 0420 PATRICK CARTER, Legislative Assistant to Representative Hodgins, stated that it is a technical amendment to Amendment 1. He read Amendment 13. Number 0528 REPRESENTATIVE RYAN stated that he has a problem being a part of a public body that is doing the public's business and having all this confidential information running around. He stated that all the resources in the state of Alaska is owned by the people. Number 0549 REPRESENTATIVE BUNDE stated that we would be guilty if malfeasance if we destroyed the commercial value of the interest by our actions. Number 0565 VICE-CHAIR BUNDE called for a roll call vote. Representatives Brice, Bunde, Kemplen, Ogan, Rokeberg and Ryan voted in favor of Amendment 10. Amendment 10 passed. Number 0636 VICE-CHAIR BUNDE stated that Representative Ryan has some more amendments to be heard at a future meeting. He recessed the House Special Oil and Gas meeting to the call of the chair at 6:10 p.m.