Legislature(1995 - 1996)
04/15/1996 05:05 PM House RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE RESOURCES STANDING COMMITTEE
April 15, 1996
5:05 p.m.
MEMBERS PRESENT
Representative Joe Green, Co-Chairman
MEMBERS ABSENT
Representative William K. "Bill" Williams, Co-Chairman
Representative Scott Ogan, Vice Chairman
Representative Alan Austerman
Representative Ramona Barnes
Representative John Davies
Representative Pete Kott
Representative Don Long
Representative Irene Nicholia
COMMITTEE CALENDAR
HOUSE BILL NO. 548
"An Act authorizing, approving, and ratifying the amendment of
Northstar Unit oil and gas leases between the State of Alaska and
BP Exploration (Alaska) Inc.; and providing for an effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 548
SHORT TITLE: NORTH STAR OIL & GAS LEASE PAYMENT
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
JRN-DATE JRN-PG ACTION
03/28/96 3434 (H) READ THE FIRST TIME - REFERRAL(S)
03/28/96 3434 (H) RESOURCES, FINANCE
03/28/96 3434 (H) FISCAL NOTE (DNR)
03/28/96 3435 (H) GOVERNOR'S TRANSMITTAL LETTER
03/28/96 3436 (H) ATTACHMENT
04/03/96 (H) RES AT 8:00 AM CAPITOL 124
04/10/96 (H) RES AT 8:00 AM CAPITOL 124
04/12/96 (H) RES AT 8:00 AM CAPITOL 124
04/15/96 (H) RES AT 5:00 PM CAPITOL 124
WITNESS REGISTER
JACK CHENOWETH
Legal Services
Legislative Affairs
Alaska State Legislature
130 Seward Street, Number 406
Juneau, Alaska 99801
Telephone: (907) 465-2450
POSITION STATEMENT: Testified on HB 548
JOHN T. SHIVELY, Commissioner
Office of the Commissioner
Department of Natural Resources
400 Willoughby Avenue
Juneau, Alaska 99801-1724
Telephone: (907) 465-2400
POSITION STATEMENT: Testified on HB 548
JERRY McCUTCHEON
121 West 11th Avenue
Anchorage, Alaska 99501
POSITION STATEMENT: Testified on HB 548
KENNETH A. BOYD, Director
Division of Oil and Gas
Department of Natural Resources
3601 C Street, Suite 1380
Anchorage, Alaska 99503-5948
Telephone: (907) 762-2547
POSITION STATEMENT: Testified on HB 548
Kevin Banks, Petroleum Economist
Division of Oil and Gas
Department of Natural Resources
3601 C Street, Suite 1380
Anchorage, Alaska 99503-5948
Telephone: (907) 762-2547
POSITION STATEMENT: Testified on HB 548
ACTION NARRATIVE
TAPE 96-56, SIDE A
Number 000
CO-CHAIRMAN JOE GREEN called the House Resources Committee meeting
to order at 5:05 p.m. Representatives Green was present at the
call to order. This meeting was teleconferenced to Anchorage.
HB 548 - NORTH STAR OIL & GAS LEASE PAYMENT
CO-CHAIR GREEN said the agenda included testimony on HB 548, an act
authorizing, approving, and ratifying the amendment of Northstar
Unit oil and gas leases between the State of Alaska and BP
Exploration (Alaska) Inc.; and providing for an effective date.
Number 0050
JACK CHENOWETH, Legal Services, Legislative Affairs, said he had
been assigned to handle any of the drafting related to HB 548.
He said he would discuss some of the points made by Assistant
Attorney General James L. Baldwin's opinion, dated March 26, 1996.
He said he did not have a fundamental disagreement with any of the
conclusions in the opinion. He said this opinion was broken down
into four parts. One part is the discussion of the authority to do
what the Administration is proposing to do under existing law and
Mr. Baldwin seems to believe that it would not be prudent to do so
under current law and consequently recommends that something be
done to amend state law and make it clear that the Administration
can do what it proposes to do. Mr. Chenoweth said he has no
argument with that point.
Number 0148
MR. CHENOWETH referred to the issue of local or special
legislation, Article 2, Section 19, the state constitution
provision, and said he agreed with Mr. Baldwin's analysis in so far
as the conclusion that the proposed HB 548 would probably not be
found to violate the local or special act requirements under the
recent cases for finding that if a matter is of statewide concern,
even though it only operates within a small geographical area, the
local and special legislation objection can be overcome. In Mr.
Baldwin's analysis, referring to page four of the opinion, there is
an acknowledgement that there is some uncertainty as far as the
local and special legislation provision is concerned. Mr. Baldwin
notes that the test the court devised, in measuring whether an act
meets or violates the local or special legislation requirement,
relates to something not too terribly different from the way the
court analyzes equal protection questions or equal protection
challenges using a sliding scale analysis. Mr. Baldwin cites
cases, and Mr. Chenoweth said, looking at the cases, he believed
this assumption was correct.
Number 0204
MR. CHENOWETH said Mr. Baldwin points out, in the second paragraph
on page four of the opinion, that there has not been a case
involving the local or special prohibition since the unified equal
protection test was adopted by the court. He said it remains to be
seen how the court will apply an equal protection analysis to a
statute claiming to violate Section 19 of Article 2, and Mr.
Baldwin acknowledged that this is an unanswerable question.
Number 0290
MR. CHENOWETH referred to Article 8, Section 17 of the state
constitution, called the uniform application clause, and said it
says laws and regulations governing the use or disposal of natural
resources shall apply equally to all persons similarly situated
with reference to the subject matter and purpose to be served by
the law or regulation. Mr. Chenoweth said the uniform application
clause is something that comes into play with respect to what is
proposed in HB 548. He said this is because, even though the
uniform application clause has only been applied with respect to
fish and game matters, it seemed to him that this clause was also
applicable to any resource situation. He said what is proposed, in
HB 548, is a narrow approach involving only one lessee and one set
of leases within a unit. He said there are other lessees in the
state who potentially might be interested in the kinds of
advantages that would result under a renegotiation of a lease. He
said the other lessees are not a part of HB 548.
Number 0405
CO-CHAIR GREEN asked if he was talking about the second or third
runners up to the Northstar leases or about other lessees with a
net profit lease.
Number 0422
MR. CHENOWETH said he was talking about other lessees with net
profit leases. He said, usually when the legislature is
legislating in the area where equal protection claims are raised,
more often than not it is enough that the legislature's direction
bears some fair and substantial relationship to what it is that
they are trying to achieve. However under the uniform application
clause, as he reads it and how it is being applied in several
cases, the Alaska Supreme Court seems to have taken a different
view and has concluded that if a claim is raised, under this
clause, it is not enough that there is merely a minimal rational
basis between what the legislature wants to do and how it goes
about achieving that goal, but rather that there be close nexus or
fit between the proposed legislation enactment and the interest
sought to be served by it. He said this court standard is more
difficult to reach than the normal or usual rational basis test and
less difficult to reach than the strict scrutiny which occurs when
a distinction is drawn due to race or color, the court derived
standard involved in this situation is somewhere in between.
Number 0537
MR. CHENOWETH said his concern is that there are other net profit
lessees in the state, who don't see themselves being helped by HB
548, and perhaps those lessees could make the argument that they
ought to be considered. He wondered that as HB 548 is being
drafted, because it is only focused on the particular Northstar
unit with one lessee, whether a bill has been drawn that draws a
close nexus or fit between the proposed enactment and the interest
sought to be served. He said he did not know if this is accurate
and said he did not know if there are other net profit lessees in
the state who have been reluctant to develop their leasehold
interests because of some problems and would stand to benefit from
a renegotiation. He said it is worthwhile asking this question to
try to find out whether the Administration has sent down a bill
that provides the necessary fit, the necessary relationship, in
order to address this interest that they think ought to be fixed,
cured or pushed along.
Number 0639
MR. CHENOWETH referred to Mr. Baldwin's opinion, where it talks
about the use of the equal protection test in the context of local
and special analysis, and said he wondered if the court wouldn't
also be facing a challenge that was grounded on the uniform
application clause and wondered whether fulfilling a minimal
rational basis test was enough or whether something more stringent
ought be considered.
Number 0655
CO-CHAIR GREEN referred to another net profit lease that was
profitable and asked if a renegotiation might be possible because
of HB 548 or would the same set of circumstances have to apply.
Number 0677
MR. CHENOWETH said he was referring to net profit leases that have
not been developed or things that have been developed or can show
a great hardship to the lessee. He said, as he understands it, the
nature of the argument from BP is that the net profit interest is
a hardship to develop the lease. He said there might be other
lessees in the same circumstance and said that the legislature
ought to give passing consideration to whether the provision in HB
548, currently directed at one lessee, ought to be broadened by
giving the commissioner authority to allow other leases to be taken
into consideration.
Number 0723
CO-CHAIR GREEN, "net profits lease B over here and maybe it isn't
a 79 or an 80 or so percent net profit, but it has a net profit,
would there be a need to have it tailored after this if that were
to come to pass or could there be discretion and could be...it
could be reduced but maybe in a completely different manner. Here
is where I am coming with that if I can, we have passed a law last
year that allows discretion with the Department of Natural
Resources (DNR) to modify royalties under three different
categories...now that is a discretion for each...let's say they all
come in because they have been shut-in...the commissioner can do
one on this lease and a little different on this lease and little
different yet on this lease so do they all have to be similar to
pass this...what is it called, close nexus, or just the fact that
there is a process."
Number 0788
MR. CHENOWETH expressed concern about the fact that there are other
net profit sharer lessees in the state, who for whatever reason
have developed at enormous costs or may not have developed for some
reason, and that these lessees are going to stand around and ask
how they can be benefited. He said the legislature, in this
particular case, is drawing a line in a way that does not apply
equally to all persons similarly situated with reference to the
subject matter and the purpose to be served by the law or
regulation. He said HB 548 carves out one and does not treat
others. He said, if the court should be asked to look at what HB
548 does and pass validity, he could not imagine that the uniform
application clause wouldn't at least be considered.
Number 0856
MR. CHENOWETH said the legislature should satisfy itself that there
are no other lessees out there or there are distinguishing features
suggesting that they are not similarly situated with reference to
the subject matter. If you end up with only the Northstar unit
leases there should be a clear indication on the record as to why
the legislature must satisfy that it be these leases only. He
said, if the legislature is not satisfied, then something needs to
be done to hold open the possibility that other lessees, similarly
situated, would have the opportunity to come in and make the same
kind of representations before the commissioner.
Number 0895
CO-CHAIR GREEN asked if this needs to be included in law or whether
or not the record would suffice.
Number 0900
MR. CHENOWETH said that if you are going to leave HB 548 as it
stands then the record would suffice because the Attorney General
can point to the record and say that the legislature did consider
this and the record shows to their satisfaction that distinctions
could be drawn between this lessee in this unit versus others who
might come in and raise the objection. He said if HB 548 is going
to be changed there is a good reason to at least put something in
the record to indicate why the legislature proposed to change the
bill. He said this point might have been thoroughly discussed on
the Senate side, but said it was a point that came to his mind as
he reviewed HB 548. He referred to Mr. Baldwin's reference, to
equal protection, and said he felt it was more than that, more than
minimal relationship, but that it was a little bit tougher and more
stringent in terms of how it might comply with the uniform
application provision.
Number 0955
CO-CHAIR GREEN asked Commissioner Shively if this issue had been
addressed on the Senate side.
Number 0980
JOHN T. SHIVELY, Commissioner, Office of the Commissioner,
Department of Natural Resources, said there are no other people who
are similarly situated, such as having a 20 percent fixed royalty
and variable royalty of over 85 percent. He said there are some
other lessees with a 20 percent fixed royalty and a variable net
profit royalty, one of which is BP in the Duck Island unit with
some partners and another at the Point Thomson unit at 52 percent.
He said DNR feels that there are some significant differences
between the lessees. He said there are other net profit leases,
but they were all fixed and not part of the bid variable and added
that there was a different situation when the leases were bid.
Number 1035
MR. CHENOWETH said he was merely bringing up this point and the
legislature can develop the response on the record or however the
legislature decides to handle it, but he said this is a fairly
obvious question and if the requirement can met and the question
can be answered it is not of concern. If you can meet that test,
the close fit or nexus, you certainly should be able to survive any
minimal relationship test under the lowest level of equal
protection analysis that Mr. Baldwin alludes to on page four of his
opinion. He said that aspect of the opinion, the local and special
legislation question, probably is well answered as far as the HB
548 and the Senate companion bill, SB 318 are concerned.
Number 1078
CO-CHAIR GREEN said there has been some rumors regarding litigation
as a result of passage of HB 548 and asked if HB 548 would stand a
better chance "to have something in the bill addressing this or do
you figure that even if it does come up the fact that it could be
kicked around with the legislature and passed anyway would
suffice?"
Number 1127
MR. CHENOWETH said HB 548 contains three or four issues which will
be the basis of litigation. He said the fact that he agrees with
Mr. Baldwin's opinion does not mean that someone else wouldn't want
to use it to base an argument against HB 548. He said any of the
points that Mr. Baldwin identifies are potential points from which
an argument can be developed to imply that the legislation is
invalid because it violates such things as the uniform application
clause and the arguments can extend from there. He said, because
of this, he feels the legislature should at least make a passing
reference to the commissioner's indication that there are no other
lessees who are situated in exactly the same way and that the
legislature believes that there are no others, if this is true, who
meet the threshold of being similarly situated so that the uniform
application clause would apply. He said this issue will come up,
it will be litigated and then at least the legislature will have
looked at and made some sort of formal response in passing in the
record then, before whatever committee or committees it is
considered, it will stand for itself.
Number 1202
COMMISSIONER SHIVELY said he agreed that it should make the record,
but said the risk belongs to BP. He said if HB 548 is found to be
invalid BP would be back under net profit leases.
Number 1236
CO-CHAIR GREEN asked if putting something in HB 548 would cause it
to act as a "catchers mitt."
Number 1244
MR. CHENOWETH said the lawyers will figure out any basis for
challenging HB 548. He said he merely presented this issue and
said the commissioner said he could point out documentation to show
that the other leases are not similarly situated.
Number 1276
MR. CHENOWETH referred to the third part of Mr. Baldwin's opinion,
on page five, regarding the public purpose question and said the
conclusion that a case can be made, that there is adequate
consideration and support of finding a direct and substantial
public benefit flowing from reduction of the net profit share, is
a fully defensible position.
Number 1300
MR. CHENOWETH said another area of concern is the competitive
bidding principles. He said Mr. Baldwin's opinion lays out the
Alaska court decisions that bear upon the issue of whether a lease
or a contract, that was entered into as the result of competitive
bidding, may or may not be amended. In Alaska case law,
essentially as Mr. Chenoweth read it, if the contract or lease is
to be materially affected, then it ought not be changed. In
addition, the cases cited by Mr. Baldwin are supportive of that
conclusion and Mr. Chenoweth offered another case, State of Hawaii
vs. Kahua Ranch, 384 p. 2d 581, dated July 1, 1963. He said the
Hawaiian Supreme Court said reformation of the lease of public
lands sold at public auction, pursuant to statutorily requiring
notice of contents of a lease, was denied by the court. He said
there have been other cases that have touched upon this in some
other jurisdictions, notably in New Jersey. He said that decision
seems to be the philosophy as far as federal purchasing regulations
are concerned that at some point, where the change is material, it
is called into question, the bid has to be cancelled out and
rebid.
MR. CHENOWETH said the DNR has a regulation in place covering
timber in material sales, 11 AAC 71.205(b), which says amendments
to the contract, timber and material sale contracts, will be made
in writing and become part of the contract upon mutual agreement of
the director and purchaser. However, an amendment under this
subsection may not materially affect or change the meaning or
intent of the contract.
Number 1430
MR. CHENOWETH said there are court cases out there and said it is
an obvious point of departure for someone who wants to challenge HB
548 by arguing that the change in the basic mechanics of bidding
this lease is truly a material change. He said the courts may have
to look long and hard to determine if they are satisfied that this
leases ought not be changed and the leases ought to be adhered to
as they were bid, with some minor modifications, may be necessary
or the leases terminated and the area offered to rebid.
Number 1450
MR. CHENOWETH referred to an editorial in the Anchorage Daily News,
two weeks ago, regarding the integrity of the competitive bidding
process. He clarified that he is not saying that HB 548 is wrong,
but where those types of challenges have been raised in the courts
in other jurisdictions, and to some extent those issues have been
raised in the Alaskan Supreme Court, and the decisions seem to
indicate that changes that are material will not be allowed.
Number 1472
COMMISSIONER SHIVELY said HB 548 is not a material change as the
economics of the field must be evaluated as you stretch it out
under the current lease provisions. He said, at this point, even
if the state were to order BP into production the earliest that
this could occur would be at the end of their current development
plan, in April of 1998. He said, it could be assumed, that BP
would proceed with some reasonable schedule and oil production
would begin in 2002 as compared to the last quarter of 1998 as it
would be under HB 548. He said when looking at the economics under
the Division of Oil and Gas (DO&G) model and what happens under net
profits there is virtually no difference between the two numbers.
He said the state, under the current lease, has certain risks which
are being reduced by making this proposal, HB 548.
Number 1517
COMMISSIONER SHIVELY said he would not predict what the courts
would do, but said the base royalty and the other provisions remain
the same and what is being changed is an exceedingly speculative
part of the lease in terms of the state's ability to get a return.
Number 1545
MR. CHENOWETH said he did not have a response to this, and added
that he made this point only because there are cases out there. He
thought there was some merit to what the commissioner has indicated
and said he did not know how prepared the courts were likely to be
in accepting the types of distinctions that are being made in the
commissioner's argument. He referred to the case in Hawaii and
said it did not give any indication that the legislature had been
asked to do anything and refused, he said what occurred was the
result of an action taken by their state land managing agency as
something they thought they could get away with and found out they
couldn't.
Number 1583
MR. CHENOWETH said HB 548 has the Administration coming to the
legislature for approval. He said, in Section 2(b) of HB 548, DNR
is asking that the legislature provide authority, in this
situation, so that the leases can be modified. He said this
process might be enough for the courts to say that if DNR convinced
the legislature to change it, then maybe it is another indicator
that HB 548 would be allowed by the courts. He said this is an
issue and questioned whether there was anything that the
legislature could do to draft or prepare legislation to meet this
challenge other than having on the record why these precedents,
particularly the in-state precedents, ought to being used as
guidance in this situation.
Number 1628
COMMISSIONER SHIVELY said one of the reasons why HB 548 came back
to the legislature was because of his point. The Administration
thought that having the branch of government that makes public
policy in the state substantially strengthens the agreement listed
in HB 548. He reiterated that if the legislature feels that HB 548
would be a force majeure the risk belongs to BP, although if HB 548
delayed the development there would be risk to the state, but said
the state had that risk anyway.
Number 1661
CO-CHAIR GREEN asked if someone wanted to take issue with this,
take an injunction and delay things, would that act as a force
majeure and extend that one year development agreement that BP has
agreed to.
Number 1675
MR. CHENOWETH said he wouldn't regard litigation as falling within
a force majeure, but didn't look at the particular language.
Number 1680
COMMISSIONER SHIVELY said the lease agreement is by the discretion
of the commissioner and said he did not know the answer to this
question. He said it is the feeling of the Administration that
there wouldn't be an injunction. He said there might be
litigation, but it is unclear that people would ask for an
injunction because all that is achieved is that it reverts back to
the original lease. He said BP might chose, if litigation is
filed, not to proceed and might claim force majeure but the
commissioner would have to make the decision on this issue.
Number 1708
CO-CHAIR GREEN said perhaps an environmental group might consider
an injunction to either delay or "get lucky."
Number 1719
COMMISSIONER SHIVELY said, for an environmental group to sue, an
injunction does not get them much, the most that happens is that BP
decides to drop the leases and the state rebids them. He said
there is oil and a field can be developed. He said some people
have stated that they will litigate, but said those people have
been recently successful in litigating whether or not the
Republican Party should or shouldn't have a closed primary.
Number 1749
MR. CHENOWETH said, one other point and then he would conclude his
comments, the two areas previously discussed both go to Section
2(b) of HB 548 which gives the commissioner authority to amend the
Northstar leases in a particular fashion and said he now wanted to
address Section 2(c) which relates to approved and ratified. He
said whenever the legislature steps into retaining, for itself, the
authority to approve a lease there is a chorus that comes out of
the Department of Law (DOL) arguing that this violates the
separation of powers. He said there are opinions that go back 15
years which support separation of powers and said it seems
interesting that, in an Administration bill, the legislature is now
being invited to approve and ratify a contract or a lease
amendment. He wondered if the role of the legislature in HB 548 is
significant enough that separation power concerns has been set
aside for a time. He said he did not think anything turns on this
issue as there probably won't be any change in the separation of
powers chorus.
There was a problem with the teleconference link.
Number 1963
JERRY McCUTCHEON was next to testify via teleconference from
Anchorage. He said, "BP had a DIS guy here, they refused to
identify the Original Oil in Place (OOIP), personal (indiscernible)
in place. They didn't give a Gas/Oil Ratio (GOR) about 4,100, they
refused to disclose the amount of gas in the gas cap, the
composition of the gas. How much gas was going to be flared, we
don't know if the gas is being injected or where the gas would go.
They did state that the degree of gravities around 43, and all I
would say is well is (indiscirnible) 130 million barrels. Well, 50
square miles for 130 million barrels seems an awful lot. There was
a group shoot in the late seventies and they found offshore a
number of structures, 12 of which were larger than Prudhoe Bay,
that of course doesn't mean there's anything in them, it just means
that they're out there. We don't know if the Northstar sits on one
of them or not. We apparently don't know where the 12 structures
are, Mr. Green might know, but the public doesn't know and that
information is old and should be readily available."
Number 2033
MR. McCUTCHEON, "It seems to me that this is a very bad idea. We
absolutely sack the contracting business what the state gets in
bidding takes time, money, effort, you know you just don't sit
(indiscernible) you got out and spend money and do your seismic
work, geology work and you prepare a bid and then someone else
comes along and they prepare a bid that is a little bit higher and
they get the lease and then they pull their cards and sell out to
somebody else and then another person comes in because of the
political connections and says, hey, we like a lower price and this
leaves everybody else holding the bag and pretty soon your
contracting becomes absolutely meaningless to anybody, it is a
lease on the inside, who is on the inside and who's got the rear
and who doesn't. And that is not a way for the state of Alaska to
do business and particularly not to do business where none of this
information is available. Prudhoe Bay at this juncture after this
many years, we have all kinds of information on Prudhoe Bay and
here you have a deliberate attempt by BP not to give information
out, not to tell what was going on."
Number 2090
KENNETH A. BOYD, Director, Division of Oil and Gas, Department of
Natural Resources, was next to testify via teleconference from
Anchorage and said he was here with Mr. Banks.
Number 2106
CO-CHAIR GREEN referred to the proprietary information of DO&G,
which the legislature is not privy to, and asked him if he had any
concerns that the estimates being used were reasonable, that
Northstar is not on the same as a Prudhoe Bay type of field.
Number 2123
MR. BOYD said DO&G has done independent analysis and that the
Division view is that 130 million barrels is a reasonable estimate.
He said the original oil in place was about twice that. He said
the DO&G figures the upside could be as large as 160 million to 165
million and the downside could go as low as 110 million barrels.
He said the 130 million estimate is certainly in the "ballpark,"
within the limits of the techniques available. He said you have
the wells, pretty good seismic coverage and said, at the time of
development, it calls for a new three dimensional program. He
concluded that DO&G is in the "ballpark."
Number 2144
CO-CHAIR GREEN suggested an hypothetical amount of 200 million
barrels and asked, in the economic analysis, if there was a
significant discrepancy between the existing net profits portion or
the royalty provision in HB 548.
Number 2163
MR. BOYD said some models were run with various proposed numbers
and said the highest number that was run through the economic model
was 180 million.
KEVIN BANKS, Petroleum Economist, Division of Oil and Gas,
Department of Natural Resources, was next to testify via
teleconference from Anchorage. He said, in response to a question
raised by Senator Halford in the Senate Resources Committee, DO&G
was asked to look at a 180 million barrel case. He said, assuming
that there would be very little additional capital expenditures in
order to achieve that barrel number, an estimate was determined
that the net profit share would be substantially higher than a base
case.
Number 2198
MR. BANKS said there were a couple of caveats that need to be
added, such as the fact that additional capital expenditures were
not included in the estimate, besides the drilling of a few new
wells which might be considered a heroic assumption. He said the
other thing that the estimate assumes is that full production would
begin in 1999, which could be another heroic assumption as DO&G has
been told that they would not begin development without
supplemental royalties. He said, given these exclusions, DO&G
found a fairly large difference in the divisions estimate. He said
he did not have the numbers, but the estimate difference is over
$550 million with the net profit shares.
Number 2253
CO-CHAIR GREEN said the committee will be getting into the model
and those sort of things. He asked if enough models were run to
show if there is a linear or exponential increase in net profits as
the ultimate recovery goes up. He said the model would not account
for an increase in capital costs.
Number 2276
MR. BANKS said he could not say if it is linear or exponential or
if it represents a certain discontinuous function as substantially
different kinds of capital expenditures have to be made to enhance
the production, or the recovery, of the oil field. He said DO&G is
working on a similar question for the Senate Resources Committee
and said he would send the answer to the House Resources Committee.
Number 2297
CO-CHAIR GREEN said if a significant increase was seen in net
profits under a high recovery case, he asked if a significant
increase was seen to the state under the proposal. He said, with
the higher rate, there would also be per well rate increases and
asked if this seen in their model.
Number 2326
MR. BANKS said the state take, under the supplemental royalties,
increases as the number of barrels, subject to royalty, increased.
He said there would also be an impact on severance taxes as well as
economic limit factors affected by these higher production rates.
Number 2338
CO-CHAIR GREEN said the commissioner indicated that this was a
special case were the state is trading a little less ultimate
recovery for more certainty in sooner recovery and asked if there
is an upside and if it was still comparable with the increased
recovery or was there a divergence starting to show up.
Number 2360
MR. BOYD said this would need to be done using the models which
were not with Mr. Banks and asked that the question be deferred to
the time that the models could be in front of them to put in those
figures.
CO-CHAIR GREEN said the information from the meeting today would
taken and reviewed.
ADJOURNMENT
There being no further business to come before the House Standing
Committee on Resources, the meeting was adjourned at 5:50 p.m.
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