Legislature(2003 - 2004)

02/06/2003 03:17 PM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                                                                           
                        February 6, 2003                                                                                        
                           3:17 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Vic Kohring, Chair                                                                                               
Representative Mike Chenault, Vice Chair                                                                                        
Representative Hugh Fate                                                                                                        
Representative Lesil McGuire                                                                                                    
Representative Norman Rokeberg                                                                                                  
Representative Harry Crawford                                                                                                   
Representative Beth Kerttula                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 69                                                                                                               
"An Act  relating to  regulation of  shallow natural  gas leasing                                                               
and  closely  related  energy  projects;  and  providing  for  an                                                               
effective date."                                                                                                                
                                                                                                                                
     - MOVED HB 69 OUT OF COMMITTEE                                                                                             
                                                                                                                                
HOUSE BILL NO. 16                                                                                                               
"An  Act   amending  the  standards  applicable   to  determining                                                               
whether,  for purposes  of the  Alaska  Stranded Gas  Development                                                               
Act, a  proposed new investment constitutes  a qualified project,                                                               
and  repealing  the deadline  for  applications  relating to  the                                                               
development of  contracts for payments  in lieu of taxes  and for                                                               
royalty  adjustments  that  may be  submitted  for  consideration                                                               
under that Act; and providing for an effective date."                                                                           
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PREVIOUS ACTION                                                                                                               
                                                                                                                                
BILL: HB 69                                                                                                                   
SHORT TITLE:REGULATION OF SHALLOW NATURAL GAS                                                                                   
SPONSOR(S): REPRESENTATIVE(S)KOHRING                                                                                            
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
01/29/03     0086       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
01/29/03     0086       (H)        O&G, RES                                                                                     
01/31/03     0108       (H)        COSPONSOR(S): HEINZE                                                                         
02/05/03     0135       (H)        COSPONSOR(S): MORGAN                                                                         
02/06/03                (H)        O&G AT 3:15 PM CAPITOL 124                                                                   
                                                                                                                                
BILL: HB 16                                                                                                                   
SHORT TITLE:STRANDED GAS DEVELOPMENT ACT AMENDMENTS                                                                             
SPONSOR(S): REPRESENTATIVE(S)FATE                                                                                               
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
01/21/03     0035       (H)        PREFILE RELEASED (1/10/03)                                                                   
01/21/03     0035       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
01/21/03     0035       (H)        O&G, RES, FIN                                                                                
01/21/03     0035       (H)        REFERRED TO OIL & GAS                                                                        
02/06/03                (H)        O&G AT 3:15 PM CAPITOL 124                                                                   
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
JACK EKSTROM, Director                                                                                                          
Government Affairs                                                                                                              
Evergreen Resources, Inc.                                                                                                       
Denver, Colorado                                                                                                                
POSITION STATEMENT:  Answered questions on HB 69.                                                                               
                                                                                                                                
MARK S. SEXTON, President and Chief Executive Officer (CEO)                                                                     
Evergreen Resources, Inc.                                                                                                       
Denver, Colorado                                                                                                                
POSITION STATEMENT:  Testified in support of HB 69 and answered                                                                 
questions.                                                                                                                      
                                                                                                                                
JOHN TANIGAWA, Alaska Projects Manager                                                                                          
Evergreen Resources Alaska                                                                                                      
Wasilla, Alaska                                                                                                                 
POSITION STATEMENT:  Answered questions on HB 69.                                                                               
                                                                                                                                
CAMILLE OECHSLI TAYLOR, Chair                                                                                                   
Alaska Oil and Gas Conservation Commission                                                                                      
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions pertaining to HB 69.                                                                    
                                                                                                                                
ROGER MARKS, Petroleum Economist                                                                                                
Economic Research Section                                                                                                       
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:    During  hearing on  HB  16,  provided  an                                                               
extensive  history of  the Alaska  Stranded Gas  Development Act;                                                               
said the  department generally  supports the  bill, but  that the                                                               
administration may  submit some amendments about  which he didn't                                                               
have specific knowledge.                                                                                                        
                                                                                                                                
JOE MARUSHACK, Vice President                                                                                                   
Alaska North Slope Gas Commercialization                                                                                        
ConocoPhillips Alaska                                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Urged passage of HB 16;  cautioned that any                                                               
amendments  or   modifications  may  unintentionally   result  in                                                               
delays;  said Version  H appears  to do  what his  company needs,                                                               
which is  to remove the  date and  allow a natural  gas pipeline,                                                               
but expressed  concern that Section  2 appears  somewhat contrary                                                               
to commercial negotiations.                                                                                                     
                                                                                                                                
KEN KONRAD, Senior Vice President                                                                                               
BP Exploration (Alaska) Inc.                                                                                                    
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Testified  on HB  16; highlighted  the need                                                               
for  the  state  to  work  with  industry  to  develop  a  fiscal                                                               
framework for  gas which  provides confidence  that the  rules of                                                               
the  game  won't  change later;  said  reauthorizing  the  Alaska                                                               
Stranded Gas Development Act is a  good idea and that if the bill                                                               
advances, it should retain its focus and simplicity.                                                                            
                                                                                                                                
MARK MYERS, Director                                                                                                            
Division of Oil & Gas                                                                                                           
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions on HB 16, Version H.                                                                    
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 03-3, SIDE A                                                                                                             
Number 0001                                                                                                                     
                                                                                                                                
CHAIR VIC KOHRING  called the House Special Committee  on Oil and                                                             
Gas  meeting to  order  at 3:17  p.m.   Representatives  Kohring,                                                               
Chenault, Fate,  and McGuire were  present at the call  to order.                                                               
Representatives Rokeberg,  Crawford, and Kerttula arrived  as the                                                               
meeting was in progress.                                                                                                        
                                                                                                                                
HB 69-REGULATION OF SHALLOW NATURAL GAS                                                                                       
                                                                                                                                
CHAIR KOHRING announced  the first order of  business, HOUSE BILL                                                               
NO. 69,  "An Act  relating to regulation  of shallow  natural gas                                                               
leasing and  closely related energy  projects; and  providing for                                                               
an effective date."                                                                                                             
                                                                                                                                
Number 0111                                                                                                                     
                                                                                                                                
CHAIR KOHRING, sponsor  of HB 69, informed members  that HB 69 is                                                               
intended   to  help   the  shallow   natural   gas  industry   in                                                               
streamlining regulations  and making  it easier for  companies to                                                               
obtain  permits more  expeditiously.   Typically, it  takes about                                                               
one to two years to be issued  a permit to drill for natural gas,                                                               
he reported;  the bill is intended  to streamline it to  30 to 60                                                               
days, thus reducing paperwork and costs.                                                                                        
                                                                                                                                
CHAIR KOHRING  said the  bill separates  two kinds  of permitting                                                               
that currently are  under one umbrella.   Now, operators drilling                                                               
shallow gas wells  are subject to the same  rules and regulations                                                               
as for big  operators that drill for the "deep  oil wells" on the                                                               
North Slope, for  example.  Offering his belief that  there is no                                                               
clear  comparison between  the two,  he said  the bill  separates                                                               
them by  giving the  Alaska Oil  and Gas  Conservation Commission                                                               
(AOGCC) and  other agencies  the ability  to grant  variances and                                                               
bypass  some  drilling  regulations  that  aren't  applicable  to                                                               
[those drilling for shallow gas].                                                                                               
                                                                                                                                
CHAIR KOHRING offered  his belief that the  legislation will help                                                               
to greatly expand  the shallow natural gas  industry.  Mentioning                                                               
that  there are  several interested  companies in  the state,  he                                                               
said   Evergreen   Resources,   Inc.,   is   "very   aggressively                                                               
operating";  he thanked  representatives  from  that company  for                                                               
being on teleconference  or present to testify.   Citing the coal                                                               
bed  methane potential  in many  villages  throughout Alaska,  he                                                               
said he'd  been told that  as many  as 35 villages  could benefit                                                               
from  this;   because  of  the   ability  to  drill   wells  more                                                               
expeditiously  and tap  into those  potential gas  resources, the                                                               
net  effect would  be a  much  cheaper fuel  source than  diesel,                                                               
taking pressure off the power cost equalization program.                                                                        
                                                                                                                                
CHAIR KOHRING  described this  as good  economic-development bill                                                               
that  encourages  more growth  in  this  particular industry  and                                                               
streamlines the  process.   He pointed  out that  this particular                                                               
type  of gas  drilling is  low-impact environmentally,  using so-                                                               
called air drilling  that reduces toxic wastes  because the wells                                                               
are drilled at  very shallow depths and don't require  the use of                                                               
toxic materials such as drilling mud.                                                                                           
                                                                                                                                
Number 0494                                                                                                                     
                                                                                                                                
REPRESENTATIVE  FATE referred  to  [paragraph  (1), beginning  on                                                               
page 1,  line 14],  which read  in part:   "(1)  the professional                                                               
staff member or the commission may  approve the variance if".  He                                                               
asked whether this mandates that it  has to be a staff member, or                                                               
whether  the  language implies  that  "the  commissioner can  ...                                                               
authorize anybody  from his  staff to do  it."  He  said it  is a                                                               
technical question of procedure.                                                                                                
                                                                                                                                
CHAIR KOHRING  offered his belief  that the  [AOGCC] commissioner                                                               
would  make that  final decision,  although  staff could  provide                                                               
advice and do research.  He  added that it wouldn't be a decision                                                               
by one [AOGCC]  member, but a decision by a  quorum of the three-                                                               
member [commission],  which therefore would require  at least two                                                               
members.  Noting that someone  in the audience [although not from                                                               
AOGCC] was nodding, he surmised that he'd answered correctly.                                                                   
                                                                                                                                
REPRESENTATIVE  FATE  requested   clarification.    He  expressed                                                               
concern  that in  the  future,  if there  were  some conflict  or                                                               
misunderstanding,  there  could  be  a  question  raised  if  the                                                               
commissioner [had relegated it to a  staff member].  He said it's                                                               
a small thing but could loom large later on.                                                                                    
                                                                                                                                
CHAIR  KOHRING requested  that  a  representative from  Evergreen                                                               
Resources,  Inc., provide  an answer,  but  suggested the  likely                                                               
need  to   make  the   change  because   it  clearly   says  "the                                                               
professional staff member or the commission".                                                                                   
                                                                                                                                
Number 0713                                                                                                                     
                                                                                                                                
REPRESENTATIVE FATE moved to adopt the foregoing as Amendment 1.                                                                
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked what  commissioner [Representative                                                               
Fate] was discussing.                                                                                                           
                                                                                                                                
CHAIR  KOHRING clarified  that it  is  the [Alaska]  Oil and  Gas                                                               
Conservation Commission.  He pointed  out that line 14 references                                                               
"the  commission" rather  than a  commissioner.   He  recommended                                                               
that Amendment 1 do the following:                                                                                              
                                                                                                                                
     Page 1, line 14:                                                                                                           
          Delete "the professional staff member"                                                                                
                                                                                                                                
Thus it would say [if "or"  were removed as well] "the commission                                                               
may approve the variance".                                                                                                      
                                                                                                                                
REPRESENTATIVE FATE concurred with having that be Amendment 1.                                                                  
                                                                                                                                
Number 0775                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG objected  for discussion  purposes.   He                                                               
asked whether the intention is  to have the whole commission vote                                                               
on something, or whether it is a "sign-off or approval."                                                                        
                                                                                                                                
CHAIR  KOHRING  offered  his understanding  that  the  commission                                                               
would have  to sign off  on it, but reiterated  his understanding                                                               
that a  quorum of  two members, at  minimum, of  the three-member                                                               
commission would have to sign off on a variance.                                                                                
                                                                                                                                
REPRESENTATIVE ROKEBERG withdrew his objection.                                                                                 
                                                                                                                                
Number 0835                                                                                                                     
                                                                                                                                
CHAIR  KOHRING,  hearing  no further  objection,  announced  that                                                               
Amendment 1 was adopted.                                                                                                        
                                                                                                                                
Number 0848                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA referred to  page 2, line 4, subparagraph                                                               
(B)  [which  also says  "the  professional  staff member  or  the                                                               
commission"].    She requested  testimony  on  whether a  similar                                                               
amendment was needed there.                                                                                                     
                                                                                                                                
Number 0960                                                                                                                     
                                                                                                                                
JACK EKSTROM, Director,  Government Affairs, Evergreen Resources,                                                               
Inc., came forward  at the invitation of Chair Kohring.   He told                                                               
the committee  that AOGCC's practice typically  is to "informally                                                               
approve  this without  taking a  formal  vote," but  will hold  a                                                               
formal vote  if there is  conflict.   He offered his  belief that                                                               
[the language  on page 2, line  4] should be changed  to say "the                                                               
commission".   He  added, "How  exactly they  do it  is generally                                                               
worked out  among themselves,  but I don't  think, in  this case,                                                               
you'd want  to designate a staff  member ... as a  substitute for                                                               
the commission."                                                                                                                
                                                                                                                                
REPRESENTATIVE KERTTULA pointed out  [language with regard to the                                                               
professional   staff  of   the  commission   designated  by   the                                                               
commission] on page  1, lines 9-10.   Mentioning consistency, she                                                               
asked whether the  idea envisioned was to  allow the professional                                                               
[staff]  member  to  do  the work,  which  the  commission  would                                                               
approve or  not approve.   She said  she wasn't sure  whether the                                                               
language was  correct, and  asked to have  that clarified  on the                                                               
record along with a recommendation.                                                                                             
                                                                                                                                
CHAIR KOHRING  suggested hearing from Evergreen  Resources, Inc.,                                                               
before taking further action on amending the bill.                                                                              
                                                                                                                                
Number 1156                                                                                                                     
                                                                                                                                
MARK  S. SEXTON,  President and  Chief  Executive Officer  (CEO),                                                               
Evergreen Resources,  Inc., testified  in support of  HB 69.   He                                                               
informed  members  that  his  company  owns  Evergreen  Resources                                                               
Alaska as a wholly owned subsidiary.  He told members:                                                                          
                                                                                                                                
     Evergreen  is  a   Denver,  Colorado-based  independent                                                                    
     energy  company.     We  are  principally   focused  on                                                                    
     developing  and expanding  nonconventional natural  gas                                                                    
     properties   throughout   North   America.     We   are                                                                    
     recognized   as  an   industry   leader  in   drilling,                                                                    
     completion,  and   production  of   ...  unconventional                                                                    
     natural gas wells such as coal bed methane.                                                                                
                                                                                                                                
     In  the Raton  basin, Evergreen  operates 950  coal bed                                                                    
     methane wells,  which typically produce  around 300,000                                                                    
     to 350,000 cubic feet of gas  per well per day at their                                                                    
     peak.    The  company   has  actually  more  than  1.25                                                                    
     trillion cubic  feet of proven natural  gas reserves in                                                                    
     the Raton  basin of southern Colorado,  essentially all                                                                    
     coal bed methane, and we've  developed all of this just                                                                    
     in the last eight years. ...                                                                                               
                                                                                                                                
     Evergreen is  a public company  traded on the  New York                                                                    
     Stock  Exchange  under the  symbol  "EVG."   A  typical                                                                    
     Evergreen well will  produce for about 25  to 30 years,                                                                    
     making  these  some of  the  most  long-lived wells  in                                                                    
     industry.                                                                                                                  
                                                                                                                                
Number 1223                                                                                                                     
                                                                                                                                
MR.  SEXTON  noted  that the  company's  Alaskan  operations  are                                                               
focusing  on the  shallow gas  resources,  particularly coal  bed                                                               
methane extraction.   He said Alaska's coal  bed methane resource                                                               
is  almost  mind  boggling -  an  estimated  approximately  1,000                                                               
trillion cubic feet  of natural gas, enough to supply  all of the                                                               
United  States'  natural  gas  demands for  eight  years  at  the                                                               
present rate of  consumption, "if you could get that  gas out, of                                                               
course."     He   added,  "There   are  additional   substantial,                                                               
unconventional tight  gas sand resources that  would also benefit                                                               
from the subject legislation that we are discussing as well."                                                                   
                                                                                                                                
MR.  SEXTON reported  that in  2001 the  company acquired  a 100-                                                               
percent working  interest in  the Pioneer  Unit, about  a 70,000-                                                               
acre leasehold  near Wasilla,  and two  months ago  completed its                                                               
first  phase of  operations:   two  pilot drilling  pods of  four                                                               
wells each,  for eight wells total,  each in a span  of less than                                                               
two days.   Suggesting  this may  be a record  for the  number of                                                               
wells drilled  in Alaska  in a  certain amount  of time,  he also                                                               
noted  that  the  company's   water-disposal  well  was  recently                                                               
permitted  by  the AOGCC.    "And  we anticipate  completing  and                                                               
testing our wells in the spring of this year," he added.                                                                        
                                                                                                                                
Number 1273                                                                                                                     
                                                                                                                                
MR. SEXTON  reported, however, that  permitting and  leasing have                                                               
been a challenge, including unique  state and local requirements.                                                               
In Colorado, for  example, permitting requires about  15 pages of                                                               
documents and  usually no  more than  about 30  days.   In Alaska                                                               
that   period  is   extended   significantly,   not  because   of                                                               
regulators, he  said, but  because of  regulations.   He remarked                                                               
that AOGCC  has been most  helpful and cooperative, and  has gone                                                               
the extra  mile, including visiting  the company's  operations in                                                               
Colorado  and gaining  a  great depth  of  understanding of  [the                                                               
company's]  methodology   and  coal  bed  methane   practices  in                                                               
general;  he thanked  them for  the assistance  and the  positive                                                               
relationships.   He offered a  similar observation  regarding the                                                               
[Department]  of  Natural  Resources,  which  he  said  has  been                                                               
cooperative  and  helpful  and   has  provided  constructive  and                                                               
instructive assistance.                                                                                                         
                                                                                                                                
Number 1404                                                                                                                     
                                                                                                                                
MR. SEXTON  explained that the  core issue  - and the  reason for                                                               
the company's vigorous support of HB  69 - is that the permitting                                                               
regime in  Alaska is designed for  deep, high-pressure, typically                                                               
offshore operations, not the  shallow, low-pressure resource that                                                               
his company seeks  to develop.  He said  regulations designed for                                                               
highly  directional, high-pressure  wells  drilled from  offshore                                                               
platforms and  drill sites on the  North Slope make no  sense for                                                               
these  "modified water  wells."   He likened  it to  regulating a                                                               
pickup truck with  rules designed to regulate an  18-wheeler.  He                                                               
further said:                                                                                                                   
                                                                                                                                
     I believe this technology and resource hold tremendous                                                                     
       promise for Alaska, both in terms of its potential                                                                       
     and, ...  I believe, our  ability to extract it.   Once                                                                    
     established,  it can  provide an  inexpensive and  safe                                                                    
     method of  powering rural Native  villages, as  well as                                                                    
     serving   the  larger   Anchorage  and   Mat-Su  Valley                                                                    
     communities.    This would  obviate  the  need ...  for                                                                    
     transporting  expensive  fuels  by hazardous  means  to                                                                    
     Alaska's  remote citizens,  and would  also do  quite a                                                                    
     bit to help  the declines in the Cook  Inlet that we've                                                                    
     all  been seeing  over  the last  few  years, which  is                                                                    
     natural, since  these fields have  been online  for 30,                                                                    
     40 years or more.                                                                                                          
                                                                                                                                
Number 1494                                                                                                                     
                                                                                                                                
MR.  SEXTON concluded  by  offering  his view  that  HB 69  would                                                               
ensure  that  the  AOGCC  and its  professional  staff  have  the                                                               
authority  and discretion  necessary "to  regulate projects  like                                                               
ours" in  an appropriate  manner that  is suited  specifically to                                                               
the   nature  and   characteristics   of   shallow  natural   gas                                                               
development projects,  and yet  still maintains  "the protections                                                               
for  human and  wildlife  safety and  the environmental  concerns                                                               
that are important to all of us."                                                                                               
                                                                                                                                
Number 1534                                                                                                                     
                                                                                                                                
CHAIR KOHRING noted that one well  drilled by the company is down                                                               
the street  from where he  lives.  He expressed  excitement about                                                               
the  potential this  kind  of drilling  represents,  and said  he                                                               
would like to see other companies do likewise.                                                                                  
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  whether anyone  from  AOGCC  was                                                               
available to testify.                                                                                                           
                                                                                                                                
CHAIR  KOHRING said  no,  although Mark  Myers  [director of  the                                                               
Division of  Oil & Gas]  was available  to answer questions.   He                                                               
said  two [AOGCC]  commissioners had  hoped to  be available  but                                                               
were making a presentation before [the House Finance Committee].                                                                
                                                                                                                                
Number 1621                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG returned  to the  issue of  amending the                                                               
bill.  He referred to the  legal opinion [dated January 29, 2003]                                                               
from Jack Chenoweth, Assistant Revisor  of Statutes [in committee                                                               
packets], which he said indicated  that the original bill, before                                                               
that  day's  amendment,  allows  a  grant  of  authority  by  the                                                               
commission  to professional  staff.   He  questioned whether  the                                                               
committee was doing the right thing [by amending the bill].                                                                     
                                                                                                                                
REPRESENTATIVE  FATE indicated  that  if [allowing  the staff  to                                                               
act, which Amendment  1 deleted] is what [AOGCC]  would like, the                                                               
amendment should be reconsidered.   He concurred with the need to                                                               
hear from AOGCC.                                                                                                                
                                                                                                                                
REPRESENTATIVE  ROKEBERG  suggested  that nothing  prohibits  the                                                               
commission from  granting authority to  the staff, even  with the                                                               
deletion  [in  Amendment  1].    He  deferred  to  Representative                                                               
Kerttula, noting her legal background.                                                                                          
                                                                                                                                
Number 1734                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KERTTULA explained  that  normally variances  are                                                               
done by  delegation to staff, because  it is a de  minimis thing.                                                               
Noting  that if  the references  to  staff are  removed from  the                                                               
bill, the  committee could say  it doesn't want to  foreclose the                                                               
commission's ability to  do this, she proposed the  need to clear                                                               
up exactly what is intended.                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROKEBERG suggested  it would  be helpful  to find                                                               
out exactly how [AOGCC operates]  and what the commission prefers                                                               
so  that the  language  doesn't go  counter  to the  commission's                                                               
current methods of operation or legal requirements.                                                                             
                                                                                                                                
CHAIR KOHRING  noted that lawyers  had worked with  various folks                                                               
including Mr.  Chenoweth in crafting  this legislation,  and that                                                               
there may be a valid reason to have [staff included].                                                                           
                                                                                                                                
Number 1826                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG indicated to  Mr. Sexton that his biggest                                                               
concern is whether  HB 69 will be helpful enough  to the company,                                                               
rather  than  taking  a  more detailed  look  at  the  regulatory                                                               
regime;  he  inquired  about that.    Emphasizing  that  Alaska's                                                               
regulatory  design is  based on  larger, more  traditional, deep-                                                               
hole  operations, Representative  Rokeberg  noted that  he was  a                                                               
sponsor of the original legislation  and is very sensitive to the                                                               
company's ability to operate.                                                                                                   
                                                                                                                                
MR. SEXTON  thanked Representative Rokeberg for  that far-sighted                                                               
question.  He responded:                                                                                                        
                                                                                                                                
     We're  really  not  trying to  change,  wholesale,  the                                                                    
     regulatory  environment   in  Alaska.    I   think  the                                                                    
     regulators do  a good job,  but I think they  have been                                                                    
     hamstrung  because of  regulations  that were  designed                                                                    
     for  a very  different type  of drilling,  ... and  for                                                                    
     good  reason.    And  I  believe  that  by  giving  the                                                                    
     regulatory agencies  the discretion they need,  ... and                                                                    
     not simply  have to follow cookbook  and textbook rules                                                                    
     that  were written  in  a  very different  environment,                                                                    
     with a very  different mindset, we believe  that we can                                                                    
     work with  the regulators if they  have the discretion,                                                                    
     because we think they do understand the differences.                                                                       
                                                                                                                                
Number 1951                                                                                                                     
                                                                                                                                
MR. SEXTON continued:                                                                                                           
                                                                                                                                
     I guess  our answer is, we'd  like to try it  this way.                                                                    
     We'd  like to  try  working with  the regulators,  show                                                                    
     what a good job we can  do, and if for some reason it's                                                                    
     not  enough, I  will  be reminded  that  you made  this                                                                    
     comment, and I  will wish that ... I  had listened more                                                                    
     carefully  to your  words.   But ...  at this  time the                                                                    
     spirit of  this is that we  can all get along  and work                                                                    
     together  as  long  as  we   give  the  regulators  the                                                                    
     discretion  ...  to  apply what  makes  sense  to  this                                                                    
     particular type of project.                                                                                                
                                                                                                                                
     One example I could give you  is, ... when we went back                                                                    
     into  a water-disposal  well, we  had to  use equipment                                                                    
     and had to obtain equipment  that I haven't seen ... in                                                                    
     20  years, since  I ...  served  on platforms  offshore                                                                    
     operated  by Amoco,  and I  saw equipment  that I  have                                                                    
     never seen ...  in the Raton basin in  Colorado, but we                                                                    
     had  to use  it:   blowout-prevention stacks  and those                                                                    
     huge, 10,000-pound-rated  manifold of pipes  and valves                                                                    
     that was,  quite honestly, unnecessary, but  those were                                                                    
     what  the regulations  specifically  required, and  the                                                                    
     regulators were not able to apply their discretion.                                                                        
                                                                                                                                
     So, ...  I guess our  answer is,  we'd like to  try and                                                                    
     work  with ...  the regulators,  as long  as they  have                                                                    
     that discretion,  and if  it is  not enough,  I'll say,                                                                    
     "Mea  culpa," and  we'll be  back asking  for something                                                                    
     additional.                                                                                                                
                                                                                                                                
Number 2039                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG thanked Mr. Sexton for the candid                                                                       
answer; he indicated the legislature would watch the situation.                                                                 
                                                                                                                                
REPRESENTATIVE  KERTTULA thanked  Mr.  Sexton and  his staff  for                                                               
getting to  know members personally and  providing information up                                                               
front.    Noting  that she'd  talked  to  [Evergreen  Resources']                                                               
Alaskan staff that afternoon, she  offered her understanding that                                                               
what  triggers this  request for  a variance  is an  undue delay.                                                               
She asked what Mr. Sexton considers  an undue delay, and how long                                                               
these kinds of projects normally last in Colorado.                                                                              
                                                                                                                                
MR. SEXTON replied that Colorado  certainly isn't without its own                                                               
extensive regulatory rules and practices,  but that a well can be                                                               
permitted  within  a 90-day  process,  even  given all  potential                                                               
objections;  that   certainly  cannot   happen  in   the  current                                                               
environment in Alaska.  For  example, when John Tanigawa prepared                                                               
permits  to  drill  eight  wells  [in  Alaska],  it  took  enough                                                               
paperwork to drill  eighty wells in Colorado, and  the wells were                                                               
drilled  six months  later than  planned.   Mr.  Sexton said  the                                                               
company's attitude  was to  show willingness  to work  within the                                                               
rules, but remarked:                                                                                                            
                                                                                                                                
     We're here to  tell you candidly that we  can't get our                                                                    
     job  done  with  the  existing structure.    We  simply                                                                    
     cannot gear up and drill what  we would like to be able                                                                    
     to drill; we  would probably be able to drill  10 or 20                                                                    
     wells a  year, but if you  would like to see  us slowly                                                                    
     build that level  to 40 wells, 60 wells,  80 wells, 100                                                                    
     wells  -  as  we  have  done  in  the  Raton  basin  in                                                                    
     Colorado,  [where] ...  we're up  to 160  wells planned                                                                    
     this  year -  we  could  never attempt  to  do that  in                                                                    
     Alaska under the existing regulatory environment.                                                                          
                                                                                                                                
Number 2228                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA remarked that  other variances with which                                                               
she  is familiar  are  from "the  other  resource agencies,"  and                                                               
usually  are for  small and  insignificant projects.   She  noted                                                               
that  [under the  bill], to  her reading,  there wouldn't  be any                                                               
size restriction  because a single  field could be very  large in                                                               
acreage.  She  asked:  Will there be any  public notice given, or                                                               
conceivably  could there  be a  very  large project  that has  no                                                               
public notice?                                                                                                                  
                                                                                                                                
MR. SEXTON responded:                                                                                                           
                                                                                                                                
     Well,  that's  an  interesting   question  in  that,  I                                                                    
     believe,  we  have already  given  public  notice.   If                                                                    
     there is anyone in the  state that John Tanigawa hasn't                                                                    
     met,  it would  be surprise  to me.   But  ... I  think                                                                    
     everyone is  aware of  what we're trying  to do.  ... I                                                                    
     think one of the things  we're particularly proud of is                                                                    
     that you can drive through  the middle of our field ...                                                                    
     in  southern Colorado  - an  area with  quite a  bit of                                                                    
     topography  and hills  - and  not see  the field.   You                                                                    
     don't even  realize you're in  the middle of it.   That                                                                    
     would be even  easier to accomplish ...  in Alaska, ...                                                                    
     given  the terrain  and the  topography,  and it  being                                                                    
     fairly  flat, and  our  ability to  use  trees ...  and                                                                    
     natural cover, which ... we intend to do.                                                                                  
                                                                                                                                
     As far as the public  notice, we are required to notify                                                                    
     landowners when we drill, and  we expect to continue to                                                                    
     notify landowners.                                                                                                         
                                                                                                                                
Number 2308                                                                                                                     
                                                                                                                                
REPRESENTATIVE   KERTTULA   surmised   that  a   requirement   of                                                               
notification  to  landowners  wouldn't   be  wiped  out  by  this                                                               
[legislation].   She said  her fundamental  concern is  to ensure                                                               
that there is some notice.                                                                                                      
                                                                                                                                
MR. SEXTON deferred to Mr. Tanigawa for more specific comments.                                                                 
                                                                                                                                
REPRESENTATIVE KERTTULA  explained her concern, that  the mineral                                                               
subsurface is still owned by  the state and technically the state                                                               
- not the  person whose property it  could be on -  is making the                                                               
deal.  She asked whether that is correct.                                                                                       
                                                                                                                                
Number 2353                                                                                                                     
                                                                                                                                
JOHN  TANIGAWA,  Alaska  Projects  Manager,  Evergreen  Resources                                                               
Alaska,  concurred.    He  pointed out  that  the  Department  of                                                               
Natural Resources (DNR) has  several public-notice provisions for                                                               
anything that  impacts the landowner.   [This legislation] refers                                                               
to  something  specific  such  as   an  exception  for  something                                                               
engineering-based.  The  desire is to be able  to accomplish such                                                               
exceptions  relatively easily.    Mr. Tanigawa  also pointed  out                                                               
that the  domain of  these exceptions  is in  the purview  of the                                                               
AOGCC, which is basically how oil and gas wells are operated.                                                                   
                                                                                                                                
REPRESENTATIVE ROKEBERG said  he shares Representative Kerttula's                                                               
concerns with  regard to proper  notification of the public.   He                                                               
related  his  belief that  this  legislation  doesn't change  any                                                               
notice  provisions.   He  asked  if  there is  notification  when                                                               
establishing a unit in which to operate.                                                                                        
                                                                                                                                
MR. TANIGAWA answered in the affirmative.                                                                                       
                                                                                                                                
REPRESENTATIVE ROKEBERG  pointed out  that generally  the primary                                                               
notice  provisions  would  take   place  during  the  unitization                                                               
hearing, which would alert all  landowners to the activity.  That                                                               
would  be  followed  by  notification   that  the  pad  would  be                                                               
established and [drilling would be done].                                                                                       
                                                                                                                                
MR. TANIGAWA affirmed that.                                                                                                     
                                                                                                                                
Number 2445                                                                                                                     
                                                                                                                                
CHAIR KOHRING noted the arrival  of Dan Seamount and Cammy Taylor                                                               
from  the Alaska  Oil and  Gas  Conservation Commission  (AOGCC).                                                               
Chair  Kohring pointed  out that  passage of  this bill  provides                                                               
AOGCC  with a  tool  that allows  them to  better  work with  the                                                               
industry and speed  the process of issuing permits.   He directed                                                               
attention to  page 1,  line 14,  and asked  Mr. Seamount  and Ms.                                                               
Taylor if  it's appropriate to  strike the language  referring to                                                               
giving  authority to  "professional staff"  to make  decisions on                                                               
granting  variances.    He   asked  whether  decisions  regarding                                                               
granting  variances  should be  left  to  the [AOGCC]  commission                                                               
members only.                                                                                                                   
                                                                                                                                
REPRESENTATIVE ROKEBERG pointed out  that [similar] language also                                                               
occurs on page 2, line 4, and page 2, lines 8-9.                                                                                
                                                                                                                                
The committee took an at-ease from 3:58 p.m. to 4:01 p.m.                                                                       
                                                                                                                                
Number 2568                                                                                                                     
                                                                                                                                
CAMILLE OECHSLI  TAYLOR, Chair, Alaska  Oil and  Gas Conservation                                                               
Commission,  explained  that  currently AOGCC  has  a  regulatory                                                               
scheme in  which an operator  on short notice [may]  receive oral                                                               
approval from the commission.  In  practice, that has been one of                                                               
two petroleum  engineers who share on-call  duties for operations                                                               
that  are   ongoing,  after  hours,   and  during   the  weekend.                                                               
Furthermore, the  regulation requires the operator  to submit the                                                               
formal paperwork for commission approval by the following day.                                                                  
                                                                                                                                
MS. TAYLOR  said the commission  has a  tremendously professional                                                               
and  competent technical  staff.   Currently,  when  there is  an                                                               
ongoing   situation,   the    [professionals]   have   kept   the                                                               
commissioners abreast  of what is  going on.  She  explained, "It                                                               
allows  for  the  opportunity  for   someone  who  is  out  there                                                               
conducting an operation  that, but for time, would cost  a lot of                                                               
money for  someone waiting for office  hours to open and  for all                                                               
three commissioners  to be  together."   Therefore, she  said she                                                               
reads  the  bill  as  allowing  the  designation  to  be  by  the                                                               
commissioners  and   that  the   commissioners  would   have  the                                                               
decision-making authority.                                                                                                      
                                                                                                                                
CHAIR KOHRING asked if the  language "designated" on page 1, line                                                               
10, should carry through the entire legislation.                                                                                
                                                                                                                                
REPRESENTATIVE FATE said he would like that.                                                                                    
                                                                                                                                
Number 2707                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG moved  that  the  committee rescind  its                                                               
action in  adopting Amendment  1.  There  being no  objection, it                                                               
was so ordered.                                                                                                                 
                                                                                                                                
CHAIR  KOHRING  asked  if  the committee  wanted  to  insert  the                                                               
language "designated" [page 1, line 14,  page 2, line 4, and page                                                               
2, lines 8 and 9] so  that any professional staff member would be                                                               
allowed to make  a decision on variances if so  designated by the                                                               
commission.                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG responded  that he  thought it  would be                                                               
redundant and  unnecessary.  He  then noted that  the committee's                                                               
intention is that they all be designated.                                                                                       
                                                                                                                                
CHAIR KOHRING inquired as to the  will of the committee.  He then                                                               
announced his  understanding that  the committee wished  to leave                                                               
the bill as it is.                                                                                                              
                                                                                                                                
Number 2802                                                                                                                     
                                                                                                                                
REPRESENTATIVE FATE  stated that he was  fine with it as  long as                                                               
the record  reflects [the intent],  and so that it  "doesn't come                                                               
back and  haunt us"  that some professional  staff makes  a wrong                                                               
decision and then  the public says the job  wasn't done properly.                                                               
Representative Fate added, "Just so  the record is clear that you                                                               
[AOGCC] have  the authority to commission  any professional staff                                                               
to make those decisions, I'm happy with it."                                                                                    
                                                                                                                                
REPRESENTATIVE  ROKEBERG inquired  as to  AOGCC's procedure  when                                                               
those [professionals] are designated.                                                                                           
                                                                                                                                
MS.  TAYLOR  answered  that  it  has  been  relatively  informal.                                                               
Therefore,  having  something  that   specifies  the  process  is                                                               
important.                                                                                                                      
                                                                                                                                
REPRESENTATIVE ROKEBERG  pointed out  that this  section requires                                                               
that AOGCC designate, presumably, a  member of staff.  Therefore,                                                               
a more formal action is implied.                                                                                                
                                                                                                                                
CHAIR KOHRING  said that  was related  to his  question regarding                                                               
whether that would carry forward throughout the bill.                                                                           
                                                                                                                                
Number 2889                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KERTTULA inquired  as to  the public  notice that                                                               
will be required when variances are  granted, and what will be in                                                               
place for these fields.                                                                                                         
                                                                                                                                
MS.  TAYLOR  responded  that generally  AOGCC's  practice  is  to                                                               
provide  for the  exception  for technical  issues  right in  the                                                               
language  of the  regulation.   The  original  legislation -  the                                                               
conservation Act  - requires AOGCC  to issue permits  promptly if                                                               
they comply with all of the  regulations.  Therefore, the goal of                                                               
AOGCC has  been to  clearly articulate  the requirements  so that                                                               
operators understand  what is  required and  it is  fairly smooth                                                               
for  the  approval  process.    The  regulation  itself  actually                                                               
articulates  the  standard  for  obtaining a  variance,  and  the                                                               
language  of  the regulation  basically  parallels  that in  this                                                               
legislation,  which  says that  "there  is  an equally  effective                                                               
means of  accomplishing the same  or demonstration that  the risk                                                               
it  would  have required  that  particular  standard for  doesn't                                                               
exist."                                                                                                                         
                                                                                                                                
MS.  TAYLOR noted  that the  regulations contain  a few  areas in                                                               
which  that provision  wasn't included,  because at  the time  of                                                               
drafting  there may  not  have been  a  need for  it  due to  the                                                               
technology available.  She pointed  out that a generic regulation                                                               
addresses   drilling   and   well-control  exceptions   for   new                                                               
technology.  [Not on  tape, but  taken  from the  Gavel to  Gavel                                                               
recording on  the Internet, was  that the exception didn't  go so                                                               
far  as  to  capture  Mr.  Tanigawa's  example  of  gas-detection                                                               
equipment, for  instance.  Ms.  Taylor said  some of that  can be                                                               
fixed with this same standard.   She added, "I'm not sure if this                                                               
was  intended to  apply as  an exception  where other  parties' -                                                               
other owners'  - interests might be  impacted.  That was  not the                                                               
way we  read it."   She  asked that the  committee explain  it if                                                               
that weren't the  case, and mentioned that  an exception relating                                                               
to an external boundary might need it, however.]                                                                                
                                                                                                                                
TAPE 03-3, SIDE B                                                                                                             
Number 2980                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA  surmised, then,  that there  has already                                                               
been a  public notice and  the landowner already knows  that this                                                               
activity  is  ongoing; therefore,  this  is  an exemption  for  a                                                               
variance  for  something technical  that  really  isn't going  to                                                               
impact the  overall operation.  She  said all she wanted  to know                                                               
was that those who are being effected have some notice early on.                                                                
                                                                                                                                
MS. TAYLOR related her understanding  that the types of variances                                                               
being discussed [in HB 69]  are technical conservation issues and                                                               
waivers  from  general  statewide   standards  -  not  for  those                                                               
regulations impacting other owners, which would require notice.                                                                 
                                                                                                                                
Number 2897                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  if  this  legislation  goes  far                                                               
enough in  overcoming the problems that  have developed vis-à-vis                                                               
the administrative regulations for  shallow gas operations versus                                                               
more typical  commercial drilling  operations.   He asked  if the                                                               
bill provides enough tools for AOGCC to make those distinctions.                                                                
                                                                                                                                
MS.  TAYLOR   mentioned  that  [AOGCC]   just  learned   of  this                                                               
legislation  at the  end  of last  week and  hasn't  had time  to                                                               
address some  other issues.   However,  AOGCC holds  the position                                                               
with respect  to all oil and  gas drilling in the  state that the                                                               
commission's  regulations should  be  directly tied  to the  risk                                                               
that it's  trying to manage, she  related.  There shouldn't  be a                                                               
requirement that doesn't directly relate  to what AOGCC is trying                                                               
to accomplish.   Therefore, the approach in [HB  69] mirrors what                                                               
AOGCC generally attempts  to do.  However,  she acknowledged that                                                               
AOGCC's regulations have historically  been aimed at conventional                                                               
oil and  gas drilling.   "To the extent  that we're aware  of the                                                               
problems that  have been raised  or pointed  out to us,  we think                                                               
that this accomplishes that," she added.                                                                                        
                                                                                                                                
Number 2822                                                                                                                     
                                                                                                                                
REPRESENTATIVE FATE  suggested putting  the staff issue  to rest.                                                               
He  turned attention  to AS  31.05.023(a), "The  commission shall                                                               
employ  such staff  as it  considers necessary  to carry  out its                                                               
responsibilities" and  decisions as  may be  delegated.   He said                                                               
that takes care of it.                                                                                                          
                                                                                                                                
CHAIR KOHRING closed the public hearing.                                                                                        
                                                                                                                                
Number 2767                                                                                                                     
                                                                                                                                
REPRESENTATIVE FATE moved  to report HB 69 out  of committee with                                                               
individual  recommendations  and  the  accompanying  zero  fiscal                                                               
note(s).  There  being no objection, HB 69 was  reported from the                                                               
House Special Committee on Oil and Gas.                                                                                         
                                                                                                                                
HB 16-STRANDED GAS DEVELOPMENT ACT AMENDMENTS                                                                                 
                                                                                                                                
CHAIR KOHRING  announced that the  final order of  business would                                                               
be HOUSE BILL  NO. 16, "An Act amending  the standards applicable                                                               
to determining whether,  for purposes of the  Alaska Stranded Gas                                                               
Development  Act,   a  proposed  new  investment   constitutes  a                                                               
qualified project,  and repealing  the deadline  for applications                                                               
relating to the development of  contracts for payments in lieu of                                                               
taxes  and for  royalty  adjustments that  may  be submitted  for                                                               
consideration  under that  Act;  and providing  for an  effective                                                               
date."                                                                                                                          
                                                                                                                                
Number 2728                                                                                                                     
                                                                                                                                
REPRESENTATIVE  McGUIRE  moved   to  adopt  Version  23-LS0101\H,                                                               
Chenoweth, 2/6/03, as the work  draft.  There being no objection,                                                               
Version H was before the committee.                                                                                             
                                                                                                                                
Number 2711                                                                                                                     
                                                                                                                                
REPRESENTATIVE FATE,  sponsor of HB  16, explained that  the bill                                                               
is a reauthorization  of the Alaska Stranded  Gas Development Act                                                               
{"the Act") with amendments.  The  purpose of the Act is to allow                                                               
negotiations  between producers  and the  State of  Alaska.   The                                                               
legislation  proposes  new  language  for  what  is  a  qualified                                                               
project.    It  allows  all  forms of  natural  gas  through  the                                                               
pipeline, including gas-to-liquids  (GTLs), liquefied natural gas                                                               
(LNG), and natural  gas; the Act, by contrast,  allowed just LNG,                                                               
to his recollection.  It  isn't route-specific, he noted, since a                                                               
lot of bills and resolutions  from the previous legislature dealt                                                               
with  that subject.   Most  important,  he said,  it repeals  the                                                               
deadline for application.   He told members that  even though the                                                               
previous version allowed for other  investors, the bill specifies                                                               
that  Alaskan  businesses  or  corporations  can  "go  into  this                                                               
pipeline with equity up to 10  percent" [of the estimated cost of                                                               
constructing a qualified project],  and it allows generically for                                                               
the market to be either domestic or foreign.                                                                                    
                                                                                                                                
Number 2580                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  recalled working on the  Alaska Stranded                                                               
Gas  Development  Act several  years  ago  in the  House  Special                                                               
Committee on  Oil and Gas,  and that  one bone of  contention was                                                               
what type of  product it would cover and the  prohibition of GTLs                                                               
by  the Act.    Alluding to  Section  2 of  Version  H, he  asked                                                               
Representative Fate  about his intention on  contract development                                                               
with regard to Alaska-based businesses,  as well as the rationale                                                               
behind having equity not exceed 10 percent.                                                                                     
                                                                                                                                
REPRESENTATIVE  FATE responded  that  the  provision for  Alaskan                                                               
business interests  is to encourage  Alaskan businesses  with the                                                               
capability and  which can  become qualified  to enter  into this.                                                               
Nothing  would  prevent  a  corporation  that  can  qualify  from                                                               
participating, he  said, whether  it is  a Native  corporation, a                                                               
combination of  Native corporations, or a  combination of Alaska-                                                               
based banks.   With regard to the  10 percent, he said  it is not                                                               
just a negotiating  tool, but is simply because  he surmises that                                                               
the  producers don't  want to  exclude anyone  but don't  want to                                                               
dilute   their  ownership   to   the  extent   that  it   becomes                                                               
unprofitable and inhibits construction of a pipeline.                                                                           
                                                                                                                                
Number 2445                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  acknowledged  the  need  to  hear  from                                                               
witnesses, but said he interpreted  that [limit of 10 percent] as                                                               
restricting the pipe size and  companies' ability to participate.                                                               
He offered his understanding that  nothing in the [Act] restricts                                                               
any  Alaska-based  company  from  participating;  therefore,  the                                                               
[new]  language  is  redundant  and  just  says  such  a  company                                                               
couldn't  have more  than 10  percent of  the equity.   He  asked                                                               
whether that was Representative Fate's intention.                                                                               
                                                                                                                                
REPRESENTATIVE FATE  answered, "It  was the intent  to encourage,                                                               
... so  that there's not too  big of ... participation  you might                                                               
see by somebody of the Alaskan  -- unless, of course, they can --                                                               
you're right:  maybe they can  come in with more than 10 percent.                                                               
Maybe they can take all the risk."                                                                                              
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  whether, then,  [BP  Exploration                                                               
(Alaska)  Inc.], an  Alaska-based company,  could only  invest 10                                                               
percent.                                                                                                                        
                                                                                                                                
REPRESENTATIVE   FATE  agreed   with  Representative   Rokeberg's                                                               
observation  about redundancy,  but  said he  wanted  to make  it                                                               
clear  that  Alaskan  businesses  can  invest  in  this  if  they                                                               
qualify.                                                                                                                        
                                                                                                                                
Number 2355                                                                                                                     
                                                                                                                                
CHAIR KOHRING  pointed out  that part of  the Act,  AS 43.82.110,                                                               
stipulates the  conditions under  any group  can be  considered a                                                               
candidate for potential  ownership in the gas pipeline.   He said                                                               
he, too, wondered about adding that 10 percent provision.                                                                       
                                                                                                                                
REPRESENTATIVE FATE  again acknowledged  the redundancy  and said                                                               
the provision is to encourage Alaskans to participate.                                                                          
                                                                                                                                
Number 2299                                                                                                                     
                                                                                                                                
CHAIR KOHRING  referred to the  fact that [the  existing language                                                               
of  the  Act set  forth  in  Section 2  of  Version  H] says  the                                                               
commissioner  may  develop  a  contract  that  includes  [various                                                               
terms,  including the  new terms  of paragraph  (5) that  discuss                                                               
Alaska-based  corporations  or  businesses  and  the  10  percent                                                               
provision].   He  expressed concern  that  it seems  to give  the                                                               
commissioner authority  to make  those decisions when  the owners                                                               
of the pipeline may not concur with the commissioner's decision.                                                                
                                                                                                                                
REPRESENTATIVE FATE  responded that at  one time he'd  planned to                                                               
take it out, but had decided to  leave it in, because it might be                                                               
a stimulus  to help propel  the pipeline forward, and  because it                                                               
gives a clear point to start  from for negotiating with regard to                                                               
either an  Alaska-based business  or even  the financiers  of the                                                               
pipeline.   "And we've labored long  and hard with the  staff and                                                               
other people  from the  industry to  discuss this,"  he remarked.                                                               
He concluded, "We'll wait and see at  the end of the day ... what                                                               
we will do with that 10 percent."                                                                                               
                                                                                                                                
Number 2203                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KERTTULA  noted  that  the original  Act  was  to                                                               
encourage development  of North Slope  gas and to add  a timeline                                                               
for development.  With Version H,  however, it appears to be "all                                                               
gas,  anywhere  at  any  time."    She  questioned  whether  that                                                               
broadness is  intended, with no  expiration date and  no sidebars                                                               
on where [the gas] goes or where it's from.                                                                                     
                                                                                                                                
REPRESENTATIVE FATE agreed that it  is broad and leaves the route                                                               
and types  of natural gas  open-ended, which he said  is intended                                                               
to  stimulate development  of the  gas pipeline  in a  more rapid                                                               
fashion.                                                                                                                        
                                                                                                                                
Number 2028                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA  questioned the incentive if  there is no                                                               
expiration date.   She  expressed concern  about when  this would                                                               
have  to occur  and  what the  incentive really  would  be.   She                                                               
observed that  the royalty  [may be included  in the  contract in                                                               
the Act,  Section 2 of Version  H] and suggested that  may be the                                                               
only incentive.                                                                                                                 
                                                                                                                                
Number 2008                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  referred to  subparagraph (C) on  page 2                                                               
[Section  1 of  Version H],  noting that  it mentions  "any other                                                               
technology",  which Representative  Fate  had said  may apply  to                                                               
GTLs.   Representative  Rokeberg  recalled the  argument in  1998                                                               
[when the  Act was passed]  that it should be  restricted because                                                               
it is  a disincentive  to build  a gas  line.   He said  the bill                                                               
really opens up that debate, which  may be the proper one to have                                                               
again because of technological  changes and other considerations.                                                               
He requested testimony from witnesses about that.                                                                               
                                                                                                                                
Number 1928                                                                                                                     
                                                                                                                                
REPRESENTATIVE  CRAWFORD  referred to  Representative  Kerttula's                                                               
question  and said  it seems  [Version H]  is worded  so that  it                                                               
could apply  to even a  very small project, rather  than relating                                                               
to just  a gas pipeline from  the North Slope.   He asked whether                                                               
that is the intent.                                                                                                             
                                                                                                                                
[Representative  Fate  responded  by  saying the  intent  is  "to                                                               
latitude 64  North."   He later  corrected his  statement because                                                               
the original  version of HB 16,  not Version H, referred  to "the                                                               
area of the state lying north of 64 degrees North latitude".]                                                                   
                                                                                                                                
Number 1809                                                                                                                     
                                                                                                                                
ROGER MARKS, Petroleum Economist,  Economic Research Section, Tax                                                               
Division, Department  of Revenue, noted  that he'd worked  on the                                                               
Act in 1998 and therefore  had some familiarity with its history,                                                               
intent, and  mechanics.  He  pointed out that the  department had                                                               
provided a three-page  overview [in addition to  the analysis] as                                                               
part of its fiscal note [for HB 16].                                                                                            
                                                                                                                                
REPRESENTATIVE ROKEBERG observed that  [the fiscal note] is about                                                               
half a million dollars.                                                                                                         
                                                                                                                                
Number 1693                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA  asked Mr.  Marks whether  the department                                                               
had looked at  possible loss to the state in  terms of royalties.                                                               
She also asked that he discuss the original intent of the Act.                                                                  
                                                                                                                                
MR.  MARKS, who  was  participating via  teleconference, said  he                                                               
hadn't  heard the  first  question and  so  began addressing  the                                                               
history.    He explained  that  in  1997 the  legislature  passed                                                               
HB 250,  which established  a North  Slope gas  commercialization                                                               
team in the  administration to research and  recommend changes to                                                               
the state law to encourage  commercialization of North Slope gas;                                                               
under HB 250,  the administration was supposed to  issue a report                                                               
to the governor by February of  1998.  That team did the research                                                               
and concluded that the North  Slope gas commercialization project                                                               
faced considerable  risks.   Because of the  size of  the project                                                               
needed to make the gas commercial,  there were big cost risks and                                                               
gas-price risks to the sponsors.                                                                                                
                                                                                                                                
MR. MARKS  told members  that, in  addition, "we"  concluded that                                                               
the  state's  fiscal  system  actually  exacerbated  those  risks                                                               
because  of  three  general  characteristics.     The  first  was                                                               
uncertainty:   a very high-cost  project with  marginal economics                                                               
could be feasible  under a certain fiscal system  and built under                                                               
that system, but  that system could be changed  by statute, which                                                               
would suddenly make the project not feasible after it was built.                                                                
                                                                                                                                
MR.  MARKS explained  the second  risk, the  so-called regressive                                                               
tax system  for production tax  and royalties.  When  profits are                                                               
high,  [the  state] gets  a  small  share  of the  profits;  when                                                               
profits are  low, it gets  a large  share.  That  exacerbates the                                                               
low-price  risk  to  sponsors,  he  said,  because  making  large                                                               
payments  to the  state when  prices are  low could  increase the                                                               
possibility of losing money or not recovering their investment.                                                                 
                                                                                                                                
MR. MARKS discussed the third risk.   The property tax is payable                                                               
once construction starts, which could  be years before revenue is                                                               
generated.   On a "time  value of  money" [basis], it  lowers the                                                               
sponsors' rate of return and  increases the probability that they                                                               
won't be able to recover their investment.                                                                                      
                                                                                                                                
Number 1452                                                                                                                     
                                                                                                                                
MR. MARKS told  members that after the team issued  its report to                                                               
the governor, it  worked with the major Prudhoe  Bay producers to                                                               
develop legislation  to deal  with those risks.   The  result was                                                               
HB 393,  which   ultimately  became   the  Alaska   Stranded  Gas                                                               
Development  Act, AS  43.82.    In general,  the  law provided  a                                                               
mechanism  for  converting  the  state's  fiscal  system  from  a                                                               
statutory  basis  to  a contractual  basis,  which  provides  for                                                               
greater fiscal certainty.  The  fiscal system would be negotiated                                                               
between the administration and the  project sponsors; possibly as                                                               
part of  the terms of  the negotiation, a less  regressive fiscal                                                               
system could  be put in place.   Mr. Marks noted  another problem                                                               
with a  regressive system:   at high  prices, the  state probably                                                               
gets less money than it could.                                                                                                  
                                                                                                                                
Number 1362                                                                                                                     
                                                                                                                                
MR.  MARKS discussed  the general  mechanics of  the process.   A                                                               
sponsor  would  submit a  project  plan  and application  to  the                                                               
administration; if  acceptable under  the terms  of the  Act, the                                                               
administration  would then  begin  negotiating  the fiscal  terms                                                               
with the sponsor.   Noting that under the Act  all tax provisions                                                               
in  the  current  statutes  would  be on  the  table,  Mr.  Marks                                                               
explained  that  because  the   royalty  represents  the  state's                                                               
ownership interests,  it was the  judgment of  the administration                                                               
that  the  state should  keep  the  one-eighth  - which  is  12.5                                                               
percent  -  royalty rate  for  Prudhoe  Bay  gas, but  that  some                                                               
royalty provisions  could be negotiated,  namely, the  timing for                                                               
taking royalty-in-kind  (RIK) or royalty-in-value (RIV)]  gas and                                                               
the  provisions for  establishing  the valuation  method for  the                                                               
royalty.                                                                                                                        
                                                                                                                                
MR.  MARKS  explained  that  once   a  contract  was  negotiated,                                                               
preliminary findings would  be submitted to the  governor; if the                                                               
governor chose to  proceed, those findings would be  given to the                                                               
legislature and  the public  for a 30-day  review period.   After                                                               
that, the  commissioner of revenue  would modify  the contractual                                                               
terms as appropriate,  and if acceptable to the  sponsor; a final                                                               
contract would be  submitted to the governor;  the governor would                                                               
transmit the  contract to  the legislature  with the  request for                                                               
authorization to execute the contract;  and the legislature would                                                               
vote on it.                                                                                                                     
                                                                                                                                
MR. MARKS addressed  other provisions.  Calling  the property tax                                                               
the  bread  and  butter  for municipalities,  he  explained  that                                                               
municipalities were  concerned about  their interests'  not being                                                               
represented in a  negotiation.  As part of the  Act, therefore, a                                                               
municipal advisory group was set  up to participate in developing                                                               
the contract  terms.   In addition, there  are provisions  in the                                                               
Act for making gas available  to communities; for local hire; and                                                               
for  dealing  with  confidential   information  provided  by  the                                                               
sponsors.                                                                                                                       
                                                                                                                                
Number 1208                                                                                                                     
                                                                                                                                
MR.  MARKS also  pointed out  that there  was a  question of  the                                                               
constitutionality  of  the  Act  as a  whole,  and  whether  this                                                               
switching to a  contract [basis] by one legislature  is binding a                                                               
future legislature.   Noting that  Article IX [Section 1]  of the                                                               
state constitution  says that the  power of taxation  shall never                                                               
be  surrendered,   suspended,  or  contracted  away,   Mr.  Marks                                                               
reported that it  was the Department of Law's  judgment that [the                                                               
Act]  was constitutional  because  it was  simply putting  fiscal                                                               
terms  into a  contractual form.   Certainly,  he said,  a future                                                               
legislature would  be able  to add tax  terms after  the contract                                                               
was in place,  but the contract itself would be  "a solemn pledge                                                               
or a  moral commitment by the  state that once it  agrees to this                                                               
contract, it would not change it."   Likening it to "a message to                                                               
the future  from one legislature  to another," Mr. Marks  said it                                                               
was  the administration's  position that  it wasn't  airtight but                                                               
was "a strong moral message."                                                                                                   
                                                                                                                                
Number 1101                                                                                                                     
                                                                                                                                
MR. MARKS informed  the committee that the  Department of Revenue                                                               
generally  supports   HB  16.     He  added  that   possibly  the                                                               
administration would  submit some amendments, although  he wasn't                                                               
aware of what they would be.                                                                                                    
                                                                                                                                
Number 1070                                                                                                                     
                                                                                                                                
MR.  MARKS,  in  response  to   a  question  from  Representative                                                               
Rokeberg, said he'd only had  [Version H] for about one-half hour                                                               
and hadn't had time to study it.                                                                                                
                                                                                                                                
REPRESENTATIVE  ROKEBERG referred  to [Section  1], the  proposed                                                               
amendments  to   AS  43.82.100   under  the   heading  "Qualified                                                               
project."   He asked  whether the  new language  in subparagraphs                                                               
(A), (B), and (C) would affect the department's fiscal note.                                                                    
                                                                                                                                
MR. MARKS said he didn't believe so.                                                                                            
                                                                                                                                
Number 1023                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA  offered her  understanding that  part of                                                               
the intent with the  Act was to "try to get the  gas going."  She                                                               
asked Mr.  Marks whether the lack  of an expiration date  [in the                                                               
bill] could  actually result in some  discouragement, and whether                                                               
he'd  ever looked  at the  economic picture  in terms  of whether                                                               
having an expiration date would provide motivation.                                                                             
                                                                                                                                
MR. MARKS said [the department] hadn't looked at that question.                                                                 
                                                                                                                                
Number 0955                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA referred to  the regressive nature of the                                                               
tax.  She asked Mr. Marks  whether [the department] has looked at                                                               
shifting that  tax so that  when the return  is high, the  tax is                                                               
high,  and  when  the  return  is low,  the  state  would  "shift                                                               
around."                                                                                                                        
                                                                                                                                
MR. MARKS said that is exactly  what was envisioned to be shifted                                                               
to.   He added, "That's  what we  call a progressive  system, ...                                                               
which, again, reduces the risk of  low prices to the sponsors and                                                               
gives the  state the opportunity  to make more money  when prices                                                               
are high."                                                                                                                      
                                                                                                                                
Number 0917                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KERTTULA  asked  whether   that  is  what  it  is                                                               
envisioned  that  the commissioner  would  negotiate  for in  the                                                               
contract.                                                                                                                       
                                                                                                                                
MR. MARKS  noted that eight principles  to strive for in  the Act                                                               
are listed in  existing AS 43.82.210(b).  Calling it  a blend, he                                                               
said some  of those "sort  of counter  each other," but  that one                                                               
principle -  which is one  direction negotiation would take  - is                                                               
that all things being equal,  a progressive system is better than                                                               
a regressive one.                                                                                                               
                                                                                                                                
Number 0793                                                                                                                     
                                                                                                                                
JOE   MARUSHACK,  Vice   President,   Alaska   North  Slope   Gas                                                               
Commercialization,  ConocoPhillips  Alaska,  testified  that  his                                                               
company  is  working hard  to  commercialize  Alaska North  Slope                                                               
(ANS)  gas through  development  of a  gas  pipeline from  Alaska                                                               
through Canada  to the  Lower 48.   Urging passage  of HB  16, he                                                               
said it  is needed so  that ConocoPhillips Alaska and  others may                                                               
initiate formal discussions  with the state, leading  to a fiscal                                                               
agreement on commercialization for ANS gas.                                                                                     
                                                                                                                                
MR. MARUSHACK  reported that ConocoPhillips Alaska  has pursued a                                                               
clear strategy to commercialize ANS gas  for more than a year and                                                               
a half, including federal enabling  legislation to provide a more                                                               
timely  and certain  U.S.  permitting  and regulatory  framework;                                                               
federal  fiscal  legislation  that  would mitigate  the  risk  of                                                               
unexpectedly low  gas prices; and  state fiscal  legislation like                                                               
HB 16 that  provides a mechanism for his company,  the state, and                                                               
others to  address issues regarding  how the gas will  be valued,                                                               
how it  will be taxed, how  local impacts will be  addressed, and                                                               
how development costs will be treated.                                                                                          
                                                                                                                                
MR.  MARUSHACK  said  that  since at  least  1973,  Alaskans  and                                                               
companies  they work  for have  labored  to overcome  significant                                                               
challenges  in bringing  Alaskan gas  to  the market.   He  cited                                                               
challenges of  the natural environment such  as terrain, climate,                                                               
elevation  changes, and  seasonal construction  limits; technical                                                               
challenges that have required use  of new materials and equipment                                                               
specifically  constructed for  this  project; and  the nature  of                                                               
this commodity,  with price uncertainty  and volatility  being at                                                               
odds with  the huge investment  and long-term  fiscal commitments                                                               
required.   On  the other  hand, he  said, Alaskans  have a  huge                                                               
opportunity for additional jobs  in construction and operation of                                                               
the  pipeline, and  the  state  treasury has  the  prospect of  a                                                               
significant new  revenue stream,  funds for  additional services.                                                               
Suggesting the  state's communities have an  opportunity to share                                                               
in the creation of new wealth, he told members:                                                                                 
                                                                                                                                
     The project can become a  reality, and the time to move                                                                    
     forward  together is  now.   Passage  of HB  16 is  the                                                                    
     first  step  that  the Alaskan  government  could  take                                                                    
     towards  addressing necessary  legislation to  move the                                                                    
     gas pipeline  project forward.  However,  I ask caution                                                                    
     regarding any new amendments  or modifications that may                                                                    
     have unintended consequences  and cause further delays.                                                                    
     We need  a clean  bill that opens  up the  stranded gas                                                                    
     Act  process,  not  one  that   adds  challenges.    In                                                                    
     closing,  ConocoPhillips   asks  that  you   pass  this                                                                    
     legislation.                                                                                                               
                                                                                                                                
MR.  MARUSHACK   requested  clarification   as  to   whether  the                                                               
committee was  addressing HB 16 or  [Version H], but said  he was                                                               
prepared to discuss either.                                                                                                     
                                                                                                                                
CHAIR KOHRING clarified that before the committee was Version H.                                                                
                                                                                                                                
Number 0531                                                                                                                     
                                                                                                                                
REPRESENTATIVE CHENAULT  asked Mr. Marushack for  his thoughts on                                                               
Version H and whether it helps or hinders the project.                                                                          
                                                                                                                                
MR.  MARUSHACK  answered  that  he hadn't  studied  it  in  great                                                               
detail, having received it a  few minutes before the hearing, but                                                               
that it appears to generally work  - and provide what his company                                                               
needs it  for - by  removing the [application deadline]  date and                                                               
opening  up the  Act  so  it addresses  a  natural gas  pipeline.                                                               
However,  he expressed  concern that  Section 2  may be  somewhat                                                               
contrary to commercial negotiations.   He said it seems the state                                                               
shouldn't dictate who  the parties holding an  equity interest in                                                               
a  commercial contract  would  be.   The  (indisc.)  and the  Act                                                               
already  contemplate  that  any  company can  participate  if  it                                                               
brings value to the table.  He added:                                                                                           
                                                                                                                                
     Any party  that brings  value to the  table is  a party                                                                    
     that  the   companies  can   probably  work   with  and                                                                    
     negotiate  with.   I also  wouldn't see  that it  makes                                                                    
     sense  ...  for anybody  who  can  create value  to  be                                                                    
     limited  to 1  percent, 10  percent, 50  percent.   But                                                                    
     those are  commercial negotiations. ... We've  had some                                                                    
     discussions with certain individuals  like this, and we                                                                    
     always give  the same message:   If there's  true value                                                                    
     there, we'll  probably going  to be  able to  ... bring                                                                    
     that to  the table.   If there's really not  true value                                                                    
     there, we  hate to see  activities that would  make the                                                                    
     negotiations  -  and  have  unintended  consequences  -                                                                    
     delay this project ... even further.                                                                                       
                                                                                                                                
Number 0381                                                                                                                     
                                                                                                                                
REPRESENTATIVE  McGUIRE  asked  whether  there  is  any  harm  in                                                               
keeping [Section 2] in there, though.                                                                                           
                                                                                                                                
MR. MARUSHACK acknowledged that  his interpretation may be wrong,                                                               
but  said  it appears  that  individuals  may  be looking  for  a                                                               
commercial advantage  through the  legislative process.   "And we                                                               
don't think that's  helpful at all," he remarked.   He indicated,                                                               
however, that  if it lowers  the cost  and creates a  more viable                                                               
project, then it creates incremental  value and is "a negotiation                                                               
that generally leads to success."                                                                                               
                                                                                                                                
Number 0325                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked   whether  ConocoPhillips  is  an                                                               
Alaska-based company.                                                                                                           
                                                                                                                                
MR.  MARUSHACK answered  that Phillips  Petroleum Company  [which                                                               
merged with Conoco Inc. in  2002] was a Delaware corporation with                                                               
"branches,  if  you will,"  in  various  areas including  Alaska.                                                               
"Whether  that constitutes  an Alaskan  company per  se, I  don't                                                               
know for sure,"  he added.  "I consider myself  to be an Alaskan,                                                               
but hopefully ... I would  not have my ownership interest limited                                                               
one way or another if I wanted to do this project."                                                                             
                                                                                                                                
REPRESENTATIVE ROKEBERG  remarked that one  corporate predecessor                                                               
of ConocoPhillips  was ARCO Alaska,  Inc., which at  least should                                                               
have had an  Alaskan business license.   Deeming Mr. Marushack to                                                               
be an  expert on it,  Representative Rokeberg then  asked whether                                                               
he believes  it would  be helpful  or necessary  for the  bill to                                                               
include a provision "allowed by  special Act of Congress allowing                                                               
the  Alaska   railroad  to  issue  IDB   [Industrial  Development                                                               
Bonds]," which he suggested may be applicable to this project.                                                                  
                                                                                                                                
MR. MARUSHACK  answered that for  the bonding potential  which he                                                               
believed Representative  Rokeberg was  talking about, if  it went                                                               
through an Internal  Revenue Service (IRS) test  and truly passed                                                               
all the requirements so that  people lending money to the project                                                               
could see  that it actually  would have a  tax-exempt-bond basis,                                                               
then  it absolutely  would  provide incremental  value.   To  the                                                               
extent that the strength of  the federal government is behind the                                                               
financing -  which he said he  understands that the bonds  may be                                                               
able  to do  - the  interest rate  could be  reduced; that  would                                                               
reduce  the  tariff,  raise  the  wellhead  value,  and  increase                                                               
royalties.    Mr. Marushack  pointed  out  that he  couldn't  say                                                               
whether that  particular mechanism  would pass  an IRS  test, and                                                               
emphasized the  need to get  an IRS  ruling that would  allow the                                                               
people lending money  to this [project] to  have enough assurance                                                               
that they would lend under those sorts of terms.                                                                                
                                                                                                                                
Number 0050                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG indicated  there possibly  could be  200                                                               
basis points  as a reduced  interest rate.   He suggested  that a                                                               
IRS  ruling  may  provide  further  protection,  particularly  if                                                               
related specifically to the project by including it in the Act.                                                                 
                                                                                                                                
TAPE 03-4, SIDE A                                                                                                             
Number 0001                                                                                                                     
                                                                                                                              
MR. MARUSHACK related  [his company's] analysis that  it would be                                                               
perhaps more like 100 basis points.   Regardless, he said, if the                                                               
interest rate  really were reduced,  it would  create incremental                                                               
value.  He also offered the  belief that financing doesn't make a                                                               
bad  project good;  rather, it  is used  to make  a good  project                                                               
better and actually get it off the  ground.  "So we would look at                                                               
this ... on  an unfinanced basis to begin with,  assuming you had                                                               
full equity  interest in this, and  then, if that passed  all the                                                               
tests, so  you ... thought  you could  actually sell that  to the                                                               
financial  community, then  you'd do  that and  hopefully make  a                                                               
more economic project at that point in time," he concluded.                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG suggested that this is known to be a                                                                    
good project, but just needs to pencil out.                                                                                     
                                                                                                                                
Number 0121                                                                                                                     
                                                                                                                                
REPRESENTATIVE FATE asked, if there were a "mix and match" of                                                                   
financial ratings on this project, how the investment bankers                                                                   
would look at it.                                                                                                               
                                                                                                                                
MR. MARUSHACK replied:                                                                                                          
                                                                                                                                
     This happens  all the time,  and it depends on  ... how                                                                    
     you  want  to structure  this  -  whether it's  project                                                                    
     financed,  whether   it's  financed  by   the  absolute                                                                    
     balance sheet  of the companies.   I don't  think we're                                                                    
     at a  point yet where we  know the answer to  that, ...                                                                    
     and  we don't  even know  who would  own this  pipeline                                                                    
     yet.                                                                                                                       
                                                                                                                                
     Currently, ... or  at least last year,  we were working                                                                    
     with  BP  and ExxonMobil  Corporation,  ConocoPhillips;                                                                    
     those  companies have  very strong  balance sheets  and                                                                    
     could  get relatively  good financing  rates.   But how                                                                    
     that would all  blend together, I think, is  one of the                                                                    
     things that needs  to be worked out,  which is actually                                                                    
     something that I think needs to happen in HB 16.                                                                           
                                                                                                                                
     I believe that  one of the real advantages  to ... your                                                                    
     bill is that it's going  to allow people from the state                                                                    
     and people  from the  producers to  sit around  ... the                                                                    
     table for a  long period of time and  talk about issues                                                                    
     just  like  this:    What does  financing  do  to  this                                                                    
     project?   Can you  get financing?   What if  the state                                                                    
     needs  something  that is  in  conflict  with what  the                                                                    
     financial people think they need to see?                                                                                   
                                                                                                                                
     There's a myriad  of issues, which is why  I think this                                                                    
     bill is  important to get  passed right now,  because I                                                                    
     don't  actually  see  us   getting  through  this  real                                                                    
     quickly.   I hope we do,  but I think it's  going to be                                                                    
     very complicated and take a  lot of work from the state                                                                    
     and   the  producers,   and  a   lot   of  sharing   of                                                                    
     information, probably  bringing in experts.   It's just                                                                    
     a very  complicated project.   There's nothing  like it                                                                    
     on earth.                                                                                                                  
                                                                                                                                
Number 0276                                                                                                                     
                                                                                                                                
REPRESENTATIVE CRAWFORD asked, since this bill apparently opens                                                                 
it up to any project at any time, whether Mr. Marushack sees                                                                    
that as keeping it a clean bill or whether it adds hurdles.                                                                     
                                                                                                                                
MR. MARUSHACK replied:                                                                                                          
                                                                                                                                
     Clearly,  ConocoPhillips  is  focused  on  a  Lower  48                                                                    
     pipeline.   We've  put a  lot of  time and  effort into                                                                    
     that.   And if this bill  passes, we are going  to come                                                                    
     forward and ask to qualify,  and want to negotiate on a                                                                    
     Lower 48 pipeline using ANS  gas ... as the product for                                                                    
     that.   But I have no  problem with opening this  up to                                                                    
     other  opportunities ....   For  instance, ...  I'm not                                                                    
     sure this  works for Evergreen [Resources],  but I hope                                                                    
     Evergreen  is tremendously  successful, and  if there's                                                                    
     other opportunities  out there,  I think that's  a good                                                                    
     thing.                                                                                                                     
                                                                                                                                
     I don't  know if this  is where you're heading  or not:                                                                    
     there's clearly a problem we  face in Washington [D.C.]                                                                    
     with  the concept  of  competing projects  -  a lot  of                                                                    
     confusion about  ... what does  Alaska really  want, do                                                                    
     they  really want  a Lower  48 pipeline,  do they  want                                                                    
     something  else.   And  ... my  message  is always,  "I                                                                    
     think this is  about the only project  that works right                                                                    
     now, and we should absolutely  focus on that."  But ...                                                                    
     I'm not recommending that we  limit utilization of this                                                                    
     to  a Lower  48  pipeline  right now.    I don't  think                                                                    
     that's necessary.                                                                                                          
                                                                                                                                
Number 0452                                                                                                                     
                                                                                                                                
KEN KONRAD, Senior Vice President, BP Exploration (Alaska) Inc.,                                                                
noting that he is the company's vice president for gas, offered                                                                 
the following testimony:                                                                                                        
                                                                                                                                
     Significant time, effort, and  money has been dedicated                                                                    
     to   develop  a   viable   gas   pipeline  project   to                                                                    
     commercialize Alaska's enormous  gas resource.  Through                                                                    
     2002 and  continuing into this year,  BP has undertaken                                                                    
     further technology-and-design optimization  work on the                                                                    
     project in  an effort to  reduce the cost of  this $20-                                                                    
     billion  project.   We're working  closely with  state,                                                                    
     federal,  and  Canadian  agency staff  around  advanced                                                                    
     materials and design, and are  inviting them to witness                                                                    
     key tests BP will be  undertaking this year to validate                                                                    
     much of the work we've done.   Results to date are very                                                                    
     encouraging.   However, technical  work alone  will not                                                                    
     be  sufficient  to  make  an   Alaska  gas  pipeline  a                                                                    
     reality.                                                                                                                   
                                                                                                                                
     Before a project  can advance to the  next stage, three                                                                    
     key  government  actions  are  needed:    a  clear  and                                                                    
     predictable  regulatory   process  with   the  Canadian                                                                    
     government and  First Nations, a clear  and predictable                                                                    
     state fiscal  framework around gas  in Alaska,  and the                                                                    
     passage of  important U.S. federal legislation.   While                                                                    
     success is  needed on all  three fronts, the  one thing                                                                    
     Alaska itself can do to  advance an Alaska gas pipeline                                                                    
     is  to sit  down and  work with  industry to  develop a                                                                    
     fiscal framework for gas  that provides confidence that                                                                    
     the rules  of the game  won't change later.   Achieving                                                                    
     this  mutually  agreed  framework   will  also  send  a                                                                    
     powerful  signal to  Washington, D.C.,  that Alaska  is                                                                    
     indeed  ready  to  see  ...   a  gas  pipeline  project                                                                    
     advance.                                                                                                                   
                                                                                                                                
Number 0602                                                                                                                     
                                                                                                                                
MR. KONRAD continued:                                                                                                           
                                                                                                                                
     We're  very  encouraged  that   our  new  governor  has                                                                    
     already   spoken  to   his   desire   to  advance   the                                                                    
     development of a predictable  fiscal framework for gas,                                                                    
     and are  similarly encouraged that the  new legislature                                                                    
     appears  ready  to  support  advancing  this  important                                                                    
     agenda.  ... Reauthorizing  the  stranded  gas Act  via                                                                    
     House  Bill  16 is  a  good  idea.   We  supported  the                                                                    
     original  stranded  gas Act  when  it  was debated  and                                                                    
     continue  to  do so.    House  Bill  16 can  provide  a                                                                    
     framework that supports negotiation  toward a clear and                                                                    
     predictable fiscal regime in  Alaska, and as such, will                                                                    
     help     support     forward    progress     on     gas                                                                    
     commercialization.                                                                                                         
                                                                                                                                
     But we  don't necessarily  need to  wait on  passage of                                                                    
     this bill to begin engaging  on the topic.  Dialog with                                                                    
     a   small,   experienced,   informed,   and   empowered                                                                    
     negotiating  team made  up  of  representatives of  the                                                                    
     state and  the producers  can commence anytime.   Under                                                                    
     any circumstance, any agreements  worked with the state                                                                    
     will require legislative review and approval.                                                                              
                                                                                                                                
     We do  believe that if  HB 16 advances,  it's important                                                                    
     that the  bill retains its  focus and simplicity  as it                                                                    
     moves  through  the  legislative process.    Otherwise,                                                                    
     there's  potential  failure  in   the  event  the  bill                                                                    
     becomes overburdened with extraneous provisions.                                                                           
                                                                                                                                
Number 0717                                                                                                                     
                                                                                                                                
MR. KONRAD  informed members  that he'd  just received  Version H                                                               
one-half hour earlier  and hadn't had a chance to  review it.  He                                                               
said it appears  to be "reasonably clean," although  he said he'd                                                               
want  to look  at the  ownership provision  more closely  to make                                                               
sure it  doesn't inadvertently restrict his  company's ability to                                                               
retain an interest in the project.                                                                                              
                                                                                                                                
MR. KONRAD  reiterated that  the one  thing the  state can  do to                                                               
help move  a gas line forward  is to take tangible  steps towards                                                               
achieving fiscal  certainty.  "That,  combined with  U.S. federal                                                               
legislation  and continued  regulatory progress  in Canada,  will                                                               
allow  Alaska  to  realize the  extraordinary  opportunities  for                                                               
jobs, revenue,  and economic stability,  as the gas  pipeline can                                                               
offer for  decades and  decades to  come," he  told members.   He                                                               
concluded by  saying that "BP  stands ready to  work productively                                                               
with the state towards a clear and predictable fiscal regime."                                                                  
                                                                                                                                
Number 0809                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG inquired  about the  political situation                                                               
with regard  to "the First  Nations issue"  in Canada as  well as                                                               
the  current position  in Ottawa  on granting  permits and  going                                                               
forward on this project.                                                                                                        
                                                                                                                                
MR. KONRAD replied that [his  company] continues to have a number                                                               
of "fairly productive" conversations  with both the First Nations                                                               
people and  the Canadian regulators,  who "have tabled  a concept                                                               
that  we believe  can work  ...  to come  up with  ... a  simple,                                                               
single  regulatory process."   He  said there  is still  a little                                                               
ways to  go in terms  of actually  formalizing that.   Mr. Konrad                                                               
told members  that he believes  things are  encouraging, although                                                               
clearly the  big focus right  now in Canada is  ensuring tangible                                                               
progress on the  Mackenzie Valley project.   He expressed support                                                               
for  that,  offering  his  belief   that  the  two  projects  are                                                               
complementary  and will  sequence naturally,  and said  the North                                                               
American market can  "certainly use all the gas it  can get."  He                                                               
added, "Every indication  is that they will be  supportive of our                                                               
project once  we get some  of these other key  government actions                                                               
in place."                                                                                                                      
                                                                                                                                
Number 0931                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  whether the  [Canadian]  federal                                                               
government is  actually "in the  way" and whether his  company is                                                               
actually able to negotiate with them now.                                                                                       
                                                                                                                                
MR. KONRAD  answered that  he doesn't  think they're  standing in                                                               
the way at all.  He said a  number of ideas have been tabled, but                                                               
in  general  there is  concurrence.    He added,  "However,  like                                                               
everyone else, they have finite  resources; they're focused right                                                               
now  on the  Mackenzie Valley  project.   But  we certainly  have                                                               
expectations ...  that during this  year we'll have  had tangible                                                               
... and complete progress in the regulatory arena."                                                                             
                                                                                                                                
REPRESENTATIVE  ROKEBERG  offered  his  understanding  that  many                                                               
sellers of gas  in the [Lower 48] fear that  when this "bubble of                                                               
gas" from the Mackenzie River area  and Alaska hits the market it                                                               
will cause the  market to be depressed, and  that therefore those                                                               
sellers are  lobbying in Washington [D.C.]  against incentives to                                                               
build  a line.   He  asked  whether that  is one  of the  biggest                                                               
problems [the producers] are dealing with.                                                                                      
                                                                                                                                
MR.  KONRAD responded  that,  clearly, a  number  of parties  are                                                               
saying a number  of things, and that  it is far from  simple.  He                                                               
said that in Canada, however,  "things feel ... pretty good," and                                                               
that  the group  there  is  almost ready  to  file permits;  that                                                               
project simply  is ahead  of the Alaskan  project.   He indicated                                                               
his  company  continues  to tell  people  in  Canada,  Washington                                                               
[D.C.], and  Alaska that clearly  in the 2010-plus  timeframe the                                                               
market will be  able to easily accommodate these  volumes of gas.                                                               
A question on  a national policy issue is  whether the preference                                                               
is to  have gas from  Alaska, import LNG,  or burn oil  in power-                                                               
generation plants.   He said  it isn't a  matter of too  much gas                                                               
coming into the market.                                                                                                         
                                                                                                                                
Number 1127                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KERTTULA   asked  Mr.  Myers  to   describe  what                                                               
Version H possibly  could apply  to, particularly with  regard to                                                               
any other technology or area.                                                                                                   
                                                                                                                                
Number 1170                                                                                                                     
                                                                                                                                
MARK  MYERS,  Director, Division  of  Oil  & Gas,  Department  of                                                               
Natural Resources, answered:                                                                                                    
                                                                                                                                
     I believe it would  qualify for, certainly, any gas-to-                                                                    
     liquids projects, basically  any statewide project that                                                                    
     could  produce the  volume  qualifications  of 500  bcf                                                                    
     over the  20-year period.  It  could potentially apply,                                                                    
     ...  I believe,  to natural  gas liquids  shipped down,                                                                    
     say, ... a conventional oil  pipeline like we do now on                                                                    
     the Slope.   So, basically,  it would be  slopewide and                                                                    
     certainly would  apply to LNG  as well  as conventional                                                                    
     gas.    It is  conceivable  in  some basins,  like  the                                                                    
     Nenana  basin,   there  may  be  sufficiency   of  gas,                                                                    
     assuming  there  was a  way  to  export it  beyond  the                                                                    
     Fairbanks market, to apply -  and possibly for coal bed                                                                    
     methane, [although]  that would be a  large quantity of                                                                    
     coal  bed methane  gas to  produce ...  over a  20-year                                                                    
     period.  So, certainly, it's broad and flexible.                                                                           
                                                                                                                                
Number 1232                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KERTTULA  asked  if  there is  a  real  need  for                                                               
incentives for all possible projects, no matter when or where.                                                                  
                                                                                                                                
MR. MARKS offered  the judgment that given the size  of all these                                                               
projects, they are  risky.  Fiscal uncertainty adds  to the other                                                               
financial risks, he said, and  these projects are marginal or "on                                                               
the line" now, so any risk  reduction is good and will help these                                                               
projects.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  KERTTULA asked,  "How far  down would  you reduce                                                               
that risk?"                                                                                                                     
                                                                                                                                
MR. MARKS  answered that  he believes  fiscal [uncertainty]  is a                                                               
risk that  can be reduced,  and that he wouldn't  characterize it                                                               
as "going down"  because the state wouldn't  necessarily come out                                                               
behind as a result of simply  nailing down its fiscal system.  He                                                               
continued:                                                                                                                      
                                                                                                                                
     In  addition, this  Act provides  the opportunities  to                                                                    
     improve  the  fiscal  system  so  that,  indeed,  under                                                                    
     certain  conditions, especially  those of  high prices,                                                                    
     the state can ... come  out much, much better than what                                                                    
     it would do ... under the  current fiscal system.  So I                                                                    
     don't believe  the state ...  is giving up  anything by                                                                    
     going  into this  process and,  indeed, could  ... come                                                                    
     out far, far better than what it is now.                                                                                   
                                                                                                                                
Number 1373                                                                                                                     
                                                                                                                                
REPRESENTATIVE   KERTTULA  expressed   a  "lawyer's   comment  or                                                               
concern"  about opening  this up.    She asked  how difficult  it                                                               
would be to  rewrite the statute so that instead  of relying on a                                                               
contract, the  provision Mr. Marks  was talking about -  in terms                                                               
of making  it a progressive  rather than regressive tax  scheme -                                                               
would be  put in statute; that  way, all parties would  know what                                                               
they are getting.                                                                                                               
                                                                                                                                
MR. MARKS answered  that the statutes could  certainly be changed                                                               
to make a  more progressive system, which would  reduce the risks                                                               
associated with  a regressive  or "front-end-loaded"  tax system.                                                               
However,  the  issue of  fiscal  uncertainty  would remain.    In                                                               
further response, he  explained that the state  could establish a                                                               
statutory fiscal regime and yet  a sponsor would question whether                                                               
to spend $20 billion without knowing  what the tax rate would be,                                                               
which may  make the  project uneconomical.   Once the  project is                                                               
built,  one can't  "unbuild  it,"  he pointed  out,  and so  just                                                               
having it  be subject to  changes in the [state's]  fiscal system                                                               
adds to the uncertainty and fiscal risk.                                                                                        
                                                                                                                                
Number 1483                                                                                                                     
                                                                                                                                
CHAIR KOHRING  announced that  HB 16  would be  held over  at the                                                               
request of the  sponsor, as well as to deal  with questions about                                                               
Section  2  of Version  H  and  to  have discussions  with  other                                                               
groups.  He expressed support for  the concept of the bill and an                                                               
intent to move it forward soon.  [HB 16 was held over.]                                                                         
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Special  Committee  on  Oil  and Gas  meeting  was  adjourned  at                                                               
5:16 p.m.                                                                                                                       

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