Legislature(1995 - 1996)
03/17/1995 05:00 PM House O&G
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
March 17, 1995
5:00 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative Bettye Davis
Representative David Finkelstein
MEMBERS ABSENT
Representative Scott Ogan, Co-Chair
Representative Gary Davis
Representative Bill Williams
Representative Tom Brice
COMMITTEE CALENDAR
HB 207: "An Act relating to adjustments to royalty reserved to the
state to encourage otherwise uneconomic production of oil
and gas; relating to the depositing of royalties and
royalty sale proceeds in the Alaska permanent fund; and
providing for an effective date."
HEARD AND HELD
HO&G - 03/17/95
HB 209: "An Act relating to the authority of the commissioner of
natural resources to allow reductions of royalty on oil
and gas leases; and providing for an effective date."
SCHEDULED BUT NOT HEARD
WITNESS REGISTER
KEN BOYD, Deputy Director
Division of Oil and Gas
Department of Natural Resources
3601 C Street, Suite 1380
Anchorage, AK 99503-5948
POSITION STATEMENT: Answered questions on HB 207
PREVIOUS ACTION
BILL: HB 207
SHORT TITLE: ADJUSTMENTS TO OIL AND GAS ROYALTIES
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
JRN-DATE JRN-PG ACTION
02/27/95 501 (H) READ THE FIRST TIME - REFERRAL(S)
02/27/95 501 (H) OIL & GAS, RESOURCES, FINANCE
02/27/95 501 (H) FISCAL NOTE (DNR)
02/27/95 501 (H) 2 ZERO FISCAL NOTES (DNR, REV)
02/27/95 501 (H) GOVERNOR'S TRANSMITTAL LETTER
03/08/95 665 (H) CORRECTED FISCAL NOTE (DNR)
03/09/95 (H) O&G AT 12:00 PM CAPITOL 17
03/09/95 (H) MINUTE(O&G)
03/14/95 (H) O&G AT 10:00 AM CAPITOL 124
03/14/95 (H) MINUTE(O&G)
03/15/95 (H) O&G AT 05:00 PM BELTZ ROOM 211
03/15/95 (H) MINUTE(O&G)
03/16/95 (H) O&G AT 10:00 AM CAPITOL 124
03/16/95 (H) MINUTES(O&G)
03/17/95 (H) O&G AT 05:00 PM CAPITOL 124
BILL: HB 209
SHORT TITLE: OIL & GAS ROYALTY REDUCTION
SPONSOR(S): REPRESENTATIVE(S) GREEN, Rokeberg
JRN-DATE JRN-PG ACTION
02/27/95 503 (H) READ THE FIRST TIME - REFERRAL(S)
02/27/95 503 (H) OIL & GAS, RESOURCES, FINANCE
03/01/95 551 (H) COSPONSOR(S): ROKEBERG
03/09/95 (H) O&G AT 12:00 PM CAPITOL 17
03/09/95 (H) MINUTE(O&G)
03/14/95 (H) O&G AT 10:00 AM CAPITOL 124
03/14/95 (H) MINUTE(O&G)
03/15/95 (H) O&G AT 05:00 PM BELTZ ROOM 211
03/15/95 (H) MINUTE(O&G)
03/16/95 (H) O&G AT 10:00 AM CAPITOL 124
03/16/95 (H) MINUTE(O&G)
03/17/95 (H) O&G AT 05:00 PM CAPITOL 124
ACTION NARRATIVE
TAPE 95-14, SIDE A
HO&G - 03/17/95
HB 207 - ADJUSTMENTS TO OIL AND GAS ROYALTIES
Number 000
CHAIRMAN ROKEBERG: ...are you there? Hello, Anchorage. Ken?
Ken? Anchorage.
(Aside: They were there a few minutes ago.)
CHAIRMAN ROKEBERG: Is everybody here that want's to testify today?
We have a lot of observation. Right. Why don't we just try to get
them again. Bill Van Dyke, he's still missing. Is there hearings
still going on in the Senate right now?
UNKNOWN FEMALE: I think it's over.
CHAIRMAN ROKEBERG: Okay. Yeah. We could be real informal. I
just want to make the secretary's job as easy as possible. It's
unfortunate that Bettye, Representative Bettye Davis and myself are
in attendance. We don't have a quorum. There's a number of people
traveling. The fish guys are in Kodiak, etcetera. But there's a
few, I just was trying today, the Chair's intention today was to
take any more further testimony from the public, is to have the
Division of Oil and Gas Commissioner's Office present any testimony
or any answers to questions they might have. And discuss
conceptually with them a few points right now that we're working on
in our, our committee substitute draft. We're in the middle, for
everybody's information, we're in the middle of drafting our
committee substitute -- how's he doing? Have you got through yet?
That's all right, we're not on the record. We're on the record,
but we're not on the record.
UNKNOWN FEMALE: Ken isn't talking yet. He's still in resources.
Don't you have anything to use?
CHAIRMAN ROKEBERG: Resources. He's still over in ....
UNKNOWN FEMALE: Revenue (indisc.).
CHAIRMAN ROKEBERG: No, he's in the Senate Resources Committee.
That's what's going on.
UNKNOWN FEMALE: Okay. So, I guess he's not there yet.
CHAIRMAN ROKEBERG: Well, we can just have a public debate here
about our CS we don't have and wait for Ken to show up 'cause
there's a few, just...
UNKNOWN: He's going to come back? If he was there, I mean, it's
a mess in Anchorage.
CHAIRMAN ROKEBERG: Yeah, he's, he's....
UNKNOWN: Oh, he's coming back here (indisc - both talking). Oh,
you mean Ken Boyd.
CHAIRMAN ROKEBERG: Yeah. He's not talking over us. He's with
Senate Resources.
UNKNOWN FEMALE: (Indisc.) in town. Everybody else is gone.
CHAIRMAN ROKEBERG: I know. Well, he's the only, he's
teleconferencing Senate Resources there.
UNKNOWN FEMALE: Oh, okay. I see.
CHAIRMAN ROKEBERG: See, as soon as he gets done with that he will
come over and....
UNKNOWN FEMALE: I understand now.
CHAIRMAN ROKEBERG: So, we're going to take what little testimony
we have and talk about some of the problems that we're facing with
the CS. There's been a, the first one I want to bring up is the,
and I would invite any comments from the audience here in this
regard, in terms of the oversight we've been discussing various
entities, groups or individuals to be part of the oversight group.
There seems to be general consensus that we could it at the
Attorney General as part of that, and so we're giving that
(indisc.) consideration. My concern is that to expand that we have
to have discussions about the Alaska Oil and Gas Conservation
Committee, and also the Royalty Board. And I was going to have Mr.
Boyd or Mr. Bill Van Dyke, of his office, talk to us about that
today. There seems to be some resistance on the part of people to
put, to put this entity in the loop, and I, I'm not sure. What I'm
hearing from at least some members of the committee is they agree
with my idea of having the loop, but we haven't really had a
discussion about that. And as I understood it, I've taken some
comments from various people regarding an apparent conflict of
interest between the conservation commission and the, and decision
on a royalty reduction. You know, there's the scope of purpose of
the conservation commission is to maximize to the best efficiency
the lifting of oil in various pools and units in the state of
Alaska. There seems to be the growing consensus that that might be
at odds with the charge of reviewing this, so. I have yet to be
convinced possibly, but I'm hoping to discussing the royalty board,
and the (indisc. - coughing) is comprises of six members three of
which are public and three of which are commissioners, including
the Commissioner of Natural Resources, Commissioner of Commerce and
the Commissioner of Revenue. Is that right? And, that they are
appointed at the will of the Governor as far as the conservation
commission is appointed (indisc.) room for cause. Do I hear some
noise in the background? Ken, you're there.
Number 116
KEN BOYD, DEPUTY DIRECTOR OF DIVISION OF OIL AND GAS, DEPARTMENT OF
NATURAL RESOURCES (Teleconference): Yes. I apologize, Mr.
Chairman. It just worked out that two trains that crashed at five
o'clock.
Number 117
CHAIRMAN ROKEBERG: I can appreciate that. I know that, and I
fully understand, and I'm glad you could make it. And we're just,
there's a few folks here in the room from the industry and
Representative Davis and Representative Finkelstein. We don't have
a quorum, but we're taking testimony and we would like to ask you
a few questions and let you respond, and then we can discuss a few
other things and maybe we can adjourn so we can go back to work on
drafting the CS. And first and foremost, we're, I was just
discussing the conversations we've had about the, the oversight
loop as it related the attorney general, the problems with the
conservation commission, which I appreciate your comments on, any
conflict of interest there? And then, the department's position on
utilizing the royalty oil and gas development board as part of the
loop. Could you, could you expand on those and answer some of
those questions, sir?
Number 141
MR. BOYD: I'll certainly try, Mr. Chairman. I, I provided staff
with the attorney general's opinion from 1980 that in pertinent
parts was, we (indisc.) that from a legal standpoint even the
appearance of a connection between the commission and the
department of natural resources would be inadvisable. And it goes
on.
Number 150
CHAIRMAN ROKEBERG: Excuse me, Mr. Boyd.
Number 154
MR. BOYD: It just seems that there is inherent conflict of
interest between having AOGCC give oversight to DNR.
Number 155
CHAIRMAN ROKEBERG: Mr. Boyd, was that, you gave me about a sheaf
of papers, maybe five to eight pages there, the other day with some
pink and blue highlight, was that the one you were referring to?
Number 156
MR. BOYD: Yes, Mr. Chairman.
CHAIRMAN ROKEBERG: Okay, good. Okay. We I.D.'d that one, it's
somewhere in the stack. Okay. Now that we know what we're looking
for. Thanks, Ken.
MR. BOYD: Okay.
CHAIRMAN ROKEBERG: (Indisc.)
Number 165
MR. BOYD: (Indisc.) it is also, it also an opinion of theirs from
a former, well, she is an attorney, and it's also, it sort of
flushes out some of the statements that are made in the attorney
general's opinion. And again, we do see it as, as a fairly direct
conflict of interest. As to the other perhaps message of
oversight, to the extent that we believe that, the committee
believes that oversight is required, there are two other things
perhaps to consider. One being the concurrence of the attorney
general and the other is the Alaska Oil and Gas Royalty Board,
which, it's not quite their full and correct title, but that's what
they are called, the Royalty Board for short, and I just caught the
part, Mr. Chairman, where you described the composition of the
royalty board. The royalty board is directly, has reviews to take
testimony on in-kind oil sales. In other words, and this will be
happening fairly shortly. We're trying to negotiate a contract now
with Tesoro. And what happens is we negotiate the contract with
Tesoro and we take the contract to the royalty board, the six
members, and we present the contract and we are asked questions and
the royalty board reviews the contract, and as a result, it's a
public meeting, and as a result of that, the royalty board makes
its recommendations to the legislature prior to the bill being
introduced. The royalty board is, is anybody that I have talked to
I have obviously not researched this thing to its depth, but it has
been my experience that it has never been used for any other
purpose, which is not to say it could not be. There are the three
commissioners and there are three members selected from the public
that are supposed to have at least some knowledge of oil and gas,
although it says so without any specificity whatsoever. In my
view, it might be difficult, you can add little layers, if you
like, of, I don't want to call it bureaucracy, but it is a little
layer of, of (indisc.) that's hard, that it will take to review
these things. Again, it's Commissioner Shively's view that if
oversight is required, he believes the concurrence of the attorney
general will, when you consider you have a public notice, I beg
your pardon, a finding process and a public hearing process as part
of this bill, you have the concurrence of the attorney general.
Commissioner Shively believes it's quite enough oversight.
Number 215
CHAIRMAN ROKEBERG: But, in terms of all the, exclusive of the
attorney general, if you had to make a choice, the royalty board
would be better than the conservation commission. Would that be
fair to say?
Number 219
MR. BOYD: Yes, Mr. Chairman. I mean, there's no, the AOGCC is
clearly conflicted, really conflicted. The royalty board is
clearly not conflicted. (Indisc. - coughing) or about DNR's
activities or perhaps bid over new unit agreements at the same time
they're trying to review royalty reduction requests. It would be
done, I advise you, Mr. Chairman, in isolation.
Number 228
CHAIRMAN ROKEBERG: Okay, and, let's go onto another topic right
now. The, you indicated earlier today that there had been a
decision on the part of the commissioner in response to the
question yesterday as to the full differential between new fields
and mature fields where we discussed and, correct me if I'm wrong,
that the commissioner would be amendable to a 25 percent of the bid
lease rate as a floor on new fields, and we had asked about
removing any, or establishing any floor on, on more mature fields,
and he was to get back to us. Do you have a response on that
issue?
Number 245
MR. BOYD: Yes, Mr. Chairman. I talked to Commissioner Shively
early this morning. He indicated to me that he wants the floor to
remain at 25 percent throughout the bill.
Number 252
CHAIRMAN ROKEBERG: And it is, ....
REPRESENTATIVE DAVID FINKELSTEIN: Mr. Chairman.
CHAIRMAN ROKEBERG: Representative Finkelstein.
Number 253
REPRESENTATIVE FINKELSTEIN: For the floor to remain at, I missed
the last part of that. The commissioner wanted the floor to remain
at?
Number 257
CHAIRMAN ROKEBERG: Twenty-five percent if we're going to have a
floor at all. Mr. Boyd, that leads to the next question. If the
committee would remove any kind of floor at all, would there be an
objection?
Number 260
MR. BOYD: Mr. Chairman, I can only say that Commissioner Shively
has said that he prefers the floor to stay at 25 percent.
Number 264
CHAIRMAN ROKEBERG: Could you, could check with him, I know you
have nothing else to do, but, do you? If you can get through the
snow to your telephone in Anchorage, to find out if we were to
remove that provision in its entirety, would there be any heartburn
or problems with the commissioner?
Number 270
MR. BOYD: Mr. Chairman, when you say, remove the provision in its
entirety, could you...?
Number 271
CHAIRMAN ROKEBERG: Remove the 25 percent floor.
MR. BOYD: (Indisc.) floor it would be zero in all cases.
CHAIRMAN ROKEBERG: Well, I just would, (indisc.) to give him the
full discretion.
Number 273
MR. BOYD: In other words, you could then have a zero royalty on
the nonproducing fields?
CHAIRMAN ROKEBERG: That would be the intended effect, yeah.
MR. BOYD: I, Mr. Chairman, I guess I speak to the commissioner
again. I know I hesitate to do so, but I'm sure that will be
unacceptable.
CHAIRMAN ROKEBERG: Well, the floor is my idea in the first place,
Ken. Excuse me.
MR. BOYD: Mr. Chair, I'll tell you the floor (indisc.)...
CHAIRMAN ROKEBERG: Okay.
MR. BOYD: ... but by that number, 25 percent, to put the floor at
zero on a field that has not even been producing, which was
probably have an ELF of zero, or a tax of zero, leaves you with
nothing.
Number 283
CHAIRMAN ROKEBERG: Well, if we make a distinction then and put no
floor in the CS, what you, his reaction be? To object to it?
Number 286
MR. BOYD: That's my belief, Mr. Chairman.
Number 288
CHAIRMAN ROKEBERG: Okay, you're, I think it's crystal clear what
you're saying, but we had to ask. Thank you very much. Mr. Boyd,
when you look at the existing regulations that have related to
Section J, there was some questions I believe that I showed you,
was it yesterday, the letter regarding the North Trading Bay
application from Marathon Oil, and a response to Mr. Kukluff(sp),
I think it was March of, well, I don't know what year it was. Then
there was a recitation of the statute and the regulations, and then
a list of the points that had to be made on an application from the
application. Then I think I showed those to you. I'm not sure you
had a chance to look at those; however, I'm very curious about that
because it seemed to me that the standards that were set forth in
the letter by then director, Mr. Eason, were higher than what was
required in the regulations. Do you know what I'm talking about?
And could you comment on that?
Number 306
MR. BOYD: Yes, Mr. Chairman, I believe it was the same. Again,
there was references to two (indisc.) and two of them (indisc.)
with regulations. I'm sure you'd be (indisc.) out, but I believe
that the first part of that, the request one set of regulations
that are pretty standard and talk about statement of facts,
(indisc.) of facts by description, and then it goes into the other
statute, I beg your pardon, in the regulations, just stating that
you do not compile the data. It just gives the list of the data
that you're supposed to provide. Again, the director is saying,
here's the information I need to make my decisions. I can't say
that this will go beyond anything, that's what he needs to make a
decision, I presume that's what he needs to make his decision.
Number 322
CHAIRMAN ROKEBERG: Mr. Boyd, I appreciate if you could take a look
at this whole regulatory scheme because I have a concern about it
now and how it relates to the directing of our CS on this, because
the chair is contemplating adding adopting regulations back in
because I'm concerned about leaving any loose ends, so if, if you
want to avoid something like that, we need to take a look the
regulations that would apply to this circumstances. And I wish you
could take a look at those to give us some direction. I think we
discussed this before because it seems to me if we leave, the
existing regulations survive this, there is a process for a public
hearing. There is also the aspect of confidentiality and then
there may be some other catchall regulations that may apply here.
Could you give me your opinion, kind of describe the whole public
process, hearing process and confidentiality as they relate to the
regulations, and how you see that unfolding? It's a bad question,
but....
Number 340
MR. BOYD: I don't even know where to begin. If you, you know, are
you asking me how, how you change regulations? How you adopt
regulations?
Number 344
CHAIRMAN ROKEBERG: No, how, what would happen if we didn't, like
the existing HB 207 deletes the reference to adopting regulations.
We have an existing set of regulations there that relate to the
sections, and in that it provides a laundry list of, of what has to
be done in the application. Does that survive, or how does affect
the whole thing?
Number 351
MR. BOYD: Mr. Chairman, I, I simply don't know, that whole process
of law, or how law is made by regulations (indisc.). I only recall
yesterday Commissioner Shively having his pledge that he would not
be overly burdensome with any requirements to provide data. And if
that needs to be changed somehow, I just don't, I'm just not
certain how to do that, but I assume you can do a statute or
regulation. In many ways I believe it is a statute that, that the
applicant really needs to that clear and convincing showing, and if
that's what you have to have, then I presume (indisc.) some things
you need to have to (indisc.) a convincing show.
CHAIRMAN ROKEBERG: Okay, Representative Finkelstein has a
question.
Number 363
REPRESENTATIVE FINKELSTEIN: Well, just, the way I see this working
and I don't think there's any, could be the confusion around this
is that the new law passes, then the, as of that date, any
regulation that is in conflict with that is no longer in effect.
The, undoubtedly, the, because this is how these things work, the
commissioner would at that point revise the regulations of, to, and
in the process of the two, you mentioned the confidentially,
confidentiality, assuming the bill was as it is written here would
clearly have to be written, because it's a new standard. Things
like public hearings are less clear because, you know, there may be
circumstances the commissioner believes the public hearing is
appropriate. It doesn't have to be a public hearing on the
administrative procedures act, but it could well be, and I think it
will be a variety of other areas. We, we've just never, in
complicated areas like this, been ever, been able to pass a law
that covers all the details, 'cause we'd be at this table, you
know, until the end of the year. And luckily, we turned that stuff
over to them and, and the process itself takes care of the
nonconforming regulations. They will be gone. The day this passes
they will, they will no longer hold effect because the rule always
is that a regulation can't stand unless it has a statute to be
based on.
Number 383
CHAIRMAN ROKEBERG: Thank you, Representative Finkelstein. That
helps me a little bit here, but what I, I guess what I'm driving
at, Director Boyd, is that in order to avoid any problems, which I
think were revealed in the application at North Trading Bay, in my
opinion whereas the request for the application exceeded what I
thought were in existing regulations, on the one hand. Or
secondarily, the regulations as written required almost too much
information, that maybe we need to revisit the regulations is my
concern. That's my concern. And if we want to expedite the
process perhaps we should speak to the statutorily and I'd just
like to have your opinion on that. Maybe require you to go look at
the regulations, I understand.
Number 398
REPRESENTATIVE BETTYE DAVIS: Mr. Chairman.
CHAIRMAN FINKELSTEIN: Representative Davis.
REPRESENTATIVE B. DAVIS: If you having a problem with the
regulations, which you say that you are, then you address it in the
statute, then as Representative Finkelstein has said, the old
regulations are going to go anyway, so you're going to promulgate
new regulations. So, if you think that it needs to be identified
more clearly in, in the statute, then you would do that. And, I
thought you were going to do that, you had said that you were, you
going to say what you require, make it more explicit so we wouldn't
have the problem that you have with the North Bay, or whatever the,
you cited. I don't think that is a problem.
Number 408
CHAIRMAN ROKEBERG: Well actually, Representative Davis, thank you
for putting that in such a way because actually the only problem I
have is I need some help from the, the commissioner's office to
help us with what we should put in the bill here.
Number 410
REPRESENTATIVE B. DAVIS: Right, but you see the commissioner's
office is not going to necessarily tell us what we should put in
there. I think we're going to have to be the ones to do that.
They'll tell you how they feel about what you think you want to put
in there, but they're not going to say, well, you put it in there
because we're not going to do what they say necessarily, because we
might not necessarily agree with what the commissioner says. We
might decide we want to do it another way.
Number 415
CHAIRMAN ROKEBERG: Excellent. Perfect. That's exactly where I
want to be right now, if everybody has that understood.
Number 418
REPRESENTATIVE FINKELSTEIN: Well, Mr. Chairman, in the end we get
the final say...
REPRESENTATIVE B. DAVIS: Right.
REPRESENTATIVE FINKELSTEIN: ...because in the interim if they
adopt regulations or enact policies that, you know, you don't
believe address your concerns and your intent then you pass a new
law next year to straighten them out.
Number 422
CHAIRMAN ROKEBERG: Very good, very good. Let's see, does the,
well, I'm trying to figure, figure out another question so we can
get out of here. Does anybody...
Number 424
REPRESENTATIVE B. DAVIS: Before, before you go any farther, what
do you plan to do in your new CS that's going to address the
problem where there was language that said the commissioner would
have the opportunity to address the royalties across the board, up
or down, at his discretion. There was some discussion yesterday,
or some other day, that they said that it should be decided at the
time that they apply for the reduction. Is that the way you're
going to put it in your new CS?
Number 430
CHAIRMAN ROKEBERG: Yes, it is.
Number 432
REPRESENTATIVE B. DAVIS: Okay, you will have that in committee.
'Cause I spoke with you on that yesterday. You said you were
thinking about...
CHAIRMAN ROKEBERG: Right.
REPRESENTATIVE B. DAVIS: ...doing that. So you...
Number 433
CHAIRMAN ROKEBERG: If I'm not mistaken what we were thinking about
doing is stipulating our preference, if you will, without using the
right words, that we would establish, we would prefer that the
commissioner establish a sliding scale royalty based on price and
various other factors.
Number 437
REPRESENTATIVE B. DAVIS: But when you say sliding scale, are you
addressing individual lessees as they apply?
CHAIRMAN ROKEBERG: Oh, yes.
REPRESENTATIVE B. DAVIS: And not something else.
Number 439
CHAIRMAN ROKEBERG: Absolutely. Everything is discrete.
Absolutely. Every, every, and we're also going to add a provision
that gives the commissioner flexibility too. You know, so we don't
tie his hands or, what we want to do is stipulate to our
preference, but he does have a sliding scale. And then the only
other thing is that we might, is the reopeners issue and how we're
going to fine tune that, and whether or not -- that becomes
important because if you have a sliding scale situation the oil
prices and even the production levels can be taken care of
formulaically(ph), but if you don't have a sliding scale you need
to stipulate that if there's an oil price increase or production
volume reserve increase, then there needs to be a reopener or
something like that. So, there's kind of two different things and
we just have to, that's the intent. I think everybody agrees with
that. It's just how you get it drafted in the language so it has
that effect. Is there any other questions? Representative
Finkelstein.
Number 455
REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. Mr. Boyd,
the, what is it in existing law that would protect us from a
company that goes in, bids on a competitive lease, loses, their
competitor gets the lease, a few years down the road comes in to
get their, the terms changed under these provisions and then they
sue because, you know, they competed under the terms, previous
terms and didn't get the lease. Is there anything that protects us
from that law suit?
Number 462
MR. BOYD: Mr. Chair and Representative Finkelstein. I'm not a
lawyer, but from what I've been told this is not a, a right. You
know, this is not something we're granting as a right. It's
something that is negotiated settlement. The statute that a party
may sue as part of the negotiated settlement as opposed to a right,
I can't, I don't, I just don't know what the opportunity for a law
suit may or may not be. But it seems to me that if it were a right
that was granted, if you had to do this that might be a different
situation from one where somebody comes (indisc. - coughing) given
a state deal, if a reason to negotiate a set of circumstances the
decision is made in a public forum. Again, not being a lawyer, I
can't say it is not subject to legal action, but it seems to me
that it's much less likely to be subject to legal action.
Number 476
REPRESENTATIVE FINKELSTEIN: Well, this may be something we want to
get some legal opinion on 'cause it, I'm not an attorney either,
but on the face of it it seems like there's a problem. If I'm out
competitively building, competitively bidding to build some sort of
building, I put in my bid for ten million, someone else get it for
nine million and it's a, you know, 400,000 square foot building,
and the next think I know it's a 300,000 square foot building, and
I would have bid less for that because they have revised downward
the standards, I'm going to be an aggrieved party and I certainly
didn't get an opportunity to bid on that. It, it may be that, I
mean, it is a legal question and I don't know the answer to it, but
it's certainly something I think we ought to be concerned with.
There's probably solutions to it by making clear in the lease
arrangement that it's subject to these provisions, and that's not
a, anyone who agrees to bid is giving up their right to later
challenge based on that revision.
Number 492
MR. BOYD: Mr. Chairman and Representative Finkelstein, I did give
to the chair a, a five point, the title of this is Nonappealability
Clause, and again, this is not an attorney general's opinion. It
is the opinion of a single attorney general, assistant attorney
general. I, I was just, well, I read one yesterday and perhaps
this is the most bombastic. I was reading (indisc. - someone else
speaking into the microphone). The Alaskan report has reserved the
limited rights to refuse nonappealable agency decisions to the
extent necessary to ensure that the agency action was not
unconstitutional, that the agency was impartial and that procedure
followed was fundamentally fair. And in the third point, again,
it's always the moral stuff, if the applicant or a third party can
show that DNR's decision flatly (indisc.) your federal
constitution, or that DNR acted in a fundamentally unfair manner
(indisc. - sneezing) in the nonappealability clause, the court will
likely review this decision, or the decision process. Again,
Representative Finkelstein, I'm not sure that gives you 100 percent
comfort. I'm not sure (indisc.) anything will. But I believe that
there is some fundamental (indisc. - coughing) that there is some
protection. You can't just frivolously appeal this and if it is a
well reasoned decision based on this law I would think it would be
very difficult to challenge unless, in fact, the process were
fatally flawed.
Number 511
REPRESENTATIVE FINKELSTEIN: Mr. Chairman, that issue, that's an
interesting one which I think relates to the issue of whether one
can appeal to the courts regardless of what's written to law, and
I don't, I haven't seen the opinion on that subject, but I'm
interested in it. The question I was getting at, which I, I guess
we can't answer at this point, is are we exposing ourselves
unnecessarily, regardless of the right to appeal, are we exposing
ourselves to a challenge because we changed the terms after someone
else has bid it competitively. And I, I don't believe it's
necessarily a problem in the future because I'm sure you'll put
into make it part of the competitive leasing that these, you are,
any company that bids on these is bidding on these, you know,
reflecting that the standards and law applies, it's self evident
that they could be reduced in the future, but to go and apply this
to existing leases where someone bid under terms that were
different than these I their, it raises a question as to whether it
could be successfully challenged. I don't know if it's worth
getting an attorney general opinion, or legal affairs opinion on
that or not, but I, I certainly think that is the most likely,
besides the company themselves, that they don't get the approved
royalty reduction, but in the case of an approved royalty
reduction, the most likely person to challenge it is going to be
the entity that lost the original bidding.
Number 535
CHAIRMAN ROKEBERG: Thank you, Representative Finkelstein. I'd
like to just state that I share your concerns in that area. That's
what I've been calling the integrity of the bidding process issue
that's really kind of parallel and collateral to this and we really
don't speak to it in the bill, but there's, it's an implicit
concern here and.... Director Boyd, we have had this conversation,
let me state my proposition and you can respond to it. Would you
think that limiting the criteria for the types of bids in the
future would be, would have any positive effect? I know under
existing statute the commissioner has the ability to design
different types of bids, including one with a, the royalty being a
variable. If we were to change the statute to limit future bids to
say 12.5 percent the customary royalty and allow such, and limit
that, and then they, and, of course, you have the other variables.
I've even heard a rumor about a sliding scale royalty scheme, at
any rate, but do you think that would have any, would that help us
in any way in terms of this integrity of bidding process that
Representative Finkelstein is talking about?
Number 554
MR. BOYD: No, I see no way at all would that solve the problem.
I mean, I don't see, why would that, first of all, then, then
you've taken away the ability of the state. Let's say there's a
discovery made in the Western Beaufort(?), just for the sake of
example. It's a new geological (indisc.) and let's say, let's add
to it that the price of oil goes up. When we now limited ourselves
to 12.5 percent royalty when, in fact, (indisc.) third replacer bid
or 25 percent might be much more appropriate. (Indisc.) In any
case, if you, if you limit the royalty to 12.5 percent we still
have a royalty reduction bill and I presume this, after they're
going to want to reduce I don't see how (indisc.) whatsoever.
Number 563
CHAIRMAN ROKEBERG: It was, the challenge I guess was, in terms of
the bidding process I guess is what I was talking about. And
generically, in other words, if you had a variable as a royalty a
firm could bid above the 12.5 percent standard minimum royalty and
then come and pray for a reduction under Section J somewhere down
the road, is what I'm getting at. Like the old 'bait 'n' switch'
is what I'm driving at.
Number 570
MR. BOYD: Well, Mr. Chairman, they've been coming in now at 12.5
percent and ask for a royalty reduction. I don't, I don't, I would
not like that flexibility (indisc. - coughing).
Number 571
CHAIRMAN ROKEBERG: Okay, well that, that answers that question,
doesn't it? Okay. Thank you. Representative Finkelstein.
Number 573
REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. Mr. Boyd, I,
I'm not sure I understand what it means, page two, line 28, where
we refer to a delineated field. It gets used a lot and I think
you, you know what it means, you know what it means to you, what
would you, how would you describe the degree of delineation
necessary to call a field delineated field?
Number 579
MR. BOYD: Representative Finkelstein, let me just deal more with
(indisc.) rather than the something that you can just stand by
something. Each field will, will vary slightly as to how they,
what, what degree of liniation that they need. But I think in a
simple term, it, it's (indisc.) would it be done, and would involve
perhaps seismic dimensional seismic three, dimensional seismic and
the drilling of some number of wells. And I think it would be a
standard that a prudent operator would actually go forward with
development. I think what happens is if, let's say (indisc.)
drills, let's say for the sake of argument, three wells and some
seismic (indisc. - coughing) on this particular field, and they
come in for a royalty reduction. As part of the negotiation for
the royalty reduction I believe the commissioner could decide that
this part of the field where the wells are and could certainly
extend to where the (indisc.) seismic is, is sufficiently
delineated that we can grant the royalty reduction on the lease
covered. But perhaps, perhaps on the very edges of the field where
the seismic is perhaps of poorer quality or is equivocal, you might
not grant a royalty reduction, although you might say, if you do X
amount of work, then we'll see if the field is to be delineated.
So, again, it's a bit of a term of art. I believe it enters into
the negotiation as to whether royalty reduction is warranted.
Number 596
REPRESENTATIVE FINKELSTEIN: Well, Mr. Boyd, how could you grant a
royalty reduction on one side of this field and not on the other?
Number 598
MR. BOYD: Mr. Chairman, Representative Finkelstein. You could,
you're given the ability of this, of this legislation to grant this
oil lease (indisc.).
Number 600
CHAIRMAN ROKEBERG: For a pool by pool bed.
Number 601
REPRESENTATIVE FINKELSTEIN: If, if, let's say we had, these things
are hard for me to visualize, but let's say we had a spot, there's
a, you know, sort of, some sort of strike (indisc.), there's
delineation kind of wells on three sides of it and the fourth side
of it isn't know. Okay, it could be relatively small, or could
extend out some great degree, that part that isn't known. Is that
a delineated field?
Number 607
MR. BOYD: Mr. Chairman, again, that, the statement of (indisc.)
two gentlemen, you say that you know that three-quarters of the
field, and understand three-quarters of the field, understand them,
yes, I would say it is lineated. As to the last quarter or last
piece as far as lineated, the answer is no. You would then
determine which leases, through this process, are delineated and,
you know, and then negotiate the, the royalty reduction contract,
if you like, and exclude those portions of the fields that the
commissioner's decision says are probably delineated. I mean, yes,
it can be on individual leases.
Number 615
REPRESENTATIVE FINKELSTEIN: Well, I somehow see that as, in my
poor understanding of what, the drama here, is in conflict with
what's in this particular sentence because we're talking about only
allowing this in a lineated field, not, you know, delineated
portion of a field, or delineated subdivision that's the site of
the lease. You have to make the decision that feels delineated,
and the reason, of course, is it affects the viability of the whole
field. I mean, how big it is.
MR. BOYD: Mr. Chairman.
Number 623
CHAIRMAN ROKEBERG: Mr. Boyd, if I could interject right here I
might even cloud the issue a little further, but I think it's
appropriate to let everybody know. We have a definition, a working
definition of field right now that may impact on Representative
Finkelstein's question. In, do, to read the portion of it, it says
"...to allow for production from a delineated but not previously
produced field, pool or portion of a field or pool that would not
otherwise be economically feasible." Well, we've that to take in
the horizon concept and allow these different stratums and so forth
to be considered, you know, in a proper basis like West Sak above
Kuparuk and all that stuff, so. And, but nevertheless, I agree
with Representative Finkelstein, and if you will allow me,
Representative Finkelstein, just to, I, I really agree with his
concern and would ask, you indicate the delineate as a term of art,
but would, are there any modifiers like, you use the word
sufficiently, or wholly, or completely delineated that would be,
would tighten up that language any?
Number 639
MR. BOYD: No, Mr. Chairman. I don't believe so. I'd like to say
something first. On page three, line three, it specifies
individual leases more than anything clear (indisc.).
Number 642
CHAIRMAN ROKEBERG: Let's see now. Could you give me the line
again there? Oh, on line three, page three?
Number 643
MR. BOYD: Yes. "...to allow reduction of royalty on individual
leases or leases unitized..." etcetera.
Number 644
CHAIRMAN ROKEBERG: Is that a conflict with our redefinition of
field then?
MR. BOYD: It is not.
CHAIRMAN ROKEBERG: It is not. So, that's okay?
MR. BOYD: Um-hmm.
Number 645
CHAIRMAN ROKEBERG: Okay, so, what's the point there then? So I
understand that.
Number 646
MR. BOYD: I believe the point is that you can, you can make the
decision on a lease by lease basis whether something is delineated
or not.
Number 648
CHAIRMAN ROKEBERG: Oh, I see. In other words, you could have a
huge field, but you'd have one lease inside the field, and then
you'd know that area was delineated.
Number 649
MR. BOYD: That's correct.
CHAIRMAN ROKEBERG: Is that, is that what you're saying. Yeah.
Okay.
Number 650
REPRESENTATIVE FINKELSTEIN: Mr. Chairman, I find this all to be
illuminating, though not reassuring because I, I know when the
commissioner has described the steps under this bill approve this,
he's, he said, number one, it's got to be a delineated field.
Number two, it's, what is the second one? I, forget the second
one. Number three is it has to be in the, you know, meet the best
interest finding. That those three considerations will have to
always be made. Actually, what is that second, second hurdle?
What am I forgetting, do you know, Mr. Boyd?
Number 657
MR. BOYD: Well, Mr. Finkelstein, I just couldn't quite hear the
question.
Number 660
REPRESENTATIVE FINKELSTEIN: Well, the, what are the three, the
commissioner was describing the terminations he has to make on this
and he said, number one, he's got to determine it's a delineated
field. Number two escapes me, and number three is he's got to make
the best interest finding. What's the, what's the other
determination you have to make before allowing the royalty
reductions?
CHAIRMAN ROKEBERG: They need the relief.
Number 663
REPRESENTATIVE B. DAVIS: Economics feasible.
CHAIRMAN ROKEBERG: Yeah.
REPRESENTATIVE B. DAVIS: That's what it says.
CHAIRMAN ROKEBERG: Economic feasibility. Is that right? Does
that....
Number 664
REPRESENTATIVE FINKELSTEIN: Well, I, I'd assume that to be part of
the best interest, the finding, but maybe that's another.... Okay,
if that's, if that's, my point I'm getting at is that the, this
delineated, whether or not it's delineated field, but the
definition I'm, you know, coming to understand now from you,
basically, doesn't make that much of a standard because you could
conclude, even enough for one lease, if it's clear enough in that
area that there's a, it's delineated in some sense that there's a
well there. That is certainly the understanding I have from the
English use of the word, not the industry use of the word. The
English use of the word is, delineated means, you know the limits
of the field. You know, it, you know, which direction (indisc. -
coughing) side of it to see that it doesn't head beyond a certain
limit and you set, you understand where it is, so that when you're
making a decision on what's an appropriate relief you have a very
good idea that, and the company has, you know, made a significant
investment, that this occurs at a point where it isn't just trying
to reduce a, a tax burden. It's, it's gone far enough in the
process that they've made their investment and now we're, we're
trying to determine how we can encourage further activity. The
count off(?). The standard you are using doesn't sound like it
would have to be much at all, if there was even just a well or two
on one side that you could decide that somehow that field was
delineating.
Number 684
MR. BOYD: Mr. Chairman, I can only think from my experiences, both
the geologists and the geophysicists and exploration for fifteen
years, that this is, this is something that is done all the time.
We do it here today just as we have for many years. It is, I, I
admit difficult perhaps to explain it, what's taking place since
there's no bright light sometimes. With delineation to a
professional, to technical professionals, it's fairly clear, and I
don't think we're in conflict with the definition you gave
delineation because as I said, as you reach the edge where you can
no longer delineate it, I mean, if you consider the delineation to
be the small subset. Anything inside that subset is lineated and
anything outside that subset we don't think is lineated is
(indisc.). And again, (indisc.) technical valuation of the
geological and geophysical engineering data to make that
determination by, again, technical professionals, geologists,
geophysicists, and we do it I'll say routinely.
Number 696
CHAIRMAN ROKEBERG: Mr. Boyd. To follow on that point, is there,
in the accounting game they have like general accepted accounting
principles, is there anything like that would maybe be applicable
here, like generally accepted petroleum engineering principles or
something?
Number 698
MR. BOYD: No, Mr. Chairman, not to my knowledge. Again, the
royalty reduction is in so many, many parts not including just the
geology, but also the economics and, and the company's finances and
many other things.
CHAIRMAN ROKEBERG: No, I mean delineation here. We just (indisc.)
delineation here. I mean....
Number 701
MR. BOYD: No, Mr. Chairman. To my knowledge, there is no, there
is no bright line where something is really delineated or really is
not. I suppose if you drill the well every ten feet, you know,
we'd have an absolute certainty of what's going on. But the
(indisc.) seismic and a sufficient number of wells, you can
determine if something is delineated.
Number 706
CHAIRMAN ROKEBERG: Just for the information of the audience, it's
come to my attention that, for example, the Badami field on the
North Slope is, well, it's going to have three so-called
delineation wells, that there is an additional six wells that were,
been drilled around nearby with large amounts of geophysical data
that went with those wells as well as significant geophysical
exploration in that area in terms of trying to "delineate."
TAPE 95-14, SIDE B
Number 000
CHAIRMAN ROKEBERG: ...line three that three wells wasn't going to
be adequate to delineate and they provided this additional
information, which I thought was, you know, pretty satisfactory
answer 'cause there was empirical evidence, in this whole
geographic area there's enough, enough holes punched in the ground
and enough work done on it that, to truly delineate it, because I
was a little bit skeptical about three wells delineating in a
field, so. I would suggest, Mr. Boyd, if you have any further
ideas on this regard, and if anybody in the audience or out there
TD(?) land, or wherever, has any ideas, please let us know. Is
there any other questions of Mr. Boyd at this time? With that, I
want to thank everybody for coming on a Friday evening and I would
like to thank Mr. Boyd. I know there's a snow storm there, and I
promise to make sure that Bill Van Dyke stays out of trouble this
weekend, and hope that, hope that we keep, stop having you twist in
the wind and get this done by next week so we can more it along,
and thanks a lot, Ken.
MR. BOYD: Thank you, Mr. Chairman.
CHAIRMAN ROKEBERG: And this is, my meeting is adjourned. Thank
you, everybody. 5:56 p.m.
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