Legislature(1997 - 1998)

02/24/1997 03:44 PM House RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
        JOINT SENATE/HOUSE RESOURCES STANDING COMMITTEE                        
                       February 24, 1997                                       
                           3:44 p.m.                                           
                                                                               
                                                                               
 SENATE MEMBERS PRESENT                                                        
                                                                               
 Senator Rick Halford, Chairman                                                
 Senator Lyda Green, Vice Chair                                                
 Senator Loren Leman                                                           
 Senator Bert Sharp                                                            
 Senator Robin Taylor                                                          
 Senator Georgianna Lincoln                                                    
                                                                               
 SENATE MEMBERS ABSENT                                                         
                                                                               
 Senator John Torgerson                                                        
                                                                               
 HOUSE MEMBERS PRESENT                                                         
                                                                               
 Representative Scott Ogan, Co-Chairman                                        
 Representative Bill Hudson, Co-Chairman                                       
 Representative Ramona Barnes                                                  
 Representative Irene Nicholia                                                 
 Representative Fred Dyson                                                     
 Representative William K. ("Bill") Williams                                   
 Representative Reggie Joule                                                   
                                                                               
 HOUSE MEMBERS ABSENT                                                          
                                                                               
 Representative Beverly Masek                                                  
 Representative Joe Green                                                      
                                                                               
 COMMITTEE CALENDAR                                                            
                                                                               
 Oil Industry Progress Report                                                  
                                                                               
      - George From, Manager - Materials, Purchasing &                         
        Contracts, ARCO Alaska                                                 
                                                                               
      - Eric Luttrell, Vice President, BP Exploration (Alaska)                 
        Incorporated                                                           
                                                                               
      - Dwight Perkins, Special Assistant, Office of the                       
        Commissioner, Department of Labor                                      
                                                                               
      - Chris Miller, Research and Analysis, Division of                       
        Administrative Services, Department of Labor                           
                                                                               
 ACTION NARRATIVE                                                              
                                                                               
 SENATE TAPE 97-13, SIDE A                                                     
 Number 0001                                                                   
                                                                               
 CHAIRMAN RICK HALFORD called the Joint Senate/House Resources                 
 Standing Committee meeting to order at 3:44 p.m.  He said the                 
 committee would receive a progress report on legislation passed               
 last session with regard to Northstar and Badami, as well as                  
 general comments about where we are on local hire and construction.           
                                                                               
 GEORGE FROM, Manager - Materials, Purchasing and Contracts, ARCO              
 Alaska, said along with partners Anadarko and Union Texas                     
 Petroleum, they discovered the Alpine Field in 1994.  After two               
 years of delineation drilling and seismic study, they announced a             
 commercial discovery late last year.  He said it is a brand new               
 reservoir for Prudhoe Bay, not just an extension of Kuparuk or                
 Prudhoe.                                                                      
                                                                               
 MR. FROM read the Alpine Development Overview to the committee.  He           
 added that the Alpine Field has slightly less volume than the Point           
 MacIntyre Field that they discovered in 1988.  It contained proven            
 and potential reserves of 250-300 million barrels in a 60,000-                
 square-mile reservoir.  The oil in Alpine Reservoir is a high                 
 quality, high gravity crude, higher in quality than either Prudhoe            
 or Kuparuk Fields.  Peak production is estimated at 60,000 barrels            
 per day.  Development of this project is estimated at $700 - $800             
 million, 30 percent less than traditional Northstar costs.                    
                                                                               
 MR. FROM outlined the project scope for the committee, referencing            
 his handout.  He said the footprint for Alpine will be                        
 approximately 85 acres, less than 0.2 percent of the 40,000-acre              
 field.  They will accomplish this by limiting the number of wells             
 and by using long-reach horizontal drilling technology.  He noted             
 one unique feature of their development is a horizontally drilled             
 river crossing under the main channel of the Colville River.                  
                                                                               
 MR. FROM presented the committee with a graph of the major cost               
 categories and their development schedule.  They plan to complete             
 construction in three winter seasons.                                         
                                                                               
 Number 0200                                                                   
                                                                               
 MR. FROM stated some of their major challenges are to minimize the            
 environmental and cultural impacts on the village of Nuiqsut and              
 protect the Colville River Delta.  He said they had minimized the             
 size of the development, eliminated the road, and are doing                   
 construction only in the winter season.  They are currently limited           
 to a single load limit of 350 tons to cross an ice bridge on the              
 Colville River.  He said they are working with the natives of                 
 Nuiqsut to lessen impact on them.  They are offering the village              
 gas or electricity, jobs and matching scholarship funds.                      
                                                                               
 MR. FROM reviewed the permit status and said they had started this            
 process in June 1995.  He said their intent is to maximize the                
 Alaskan content through capacity, capability and competitiveness.             
 He listed their alliance companies:  ASRC/Parsons Engineering Ltd.,           
 Alaska Petroleum Contractors, Houston Contracting Company, Nuiqsut            
 Constructors, Michael Baker, and Tri-Ocean Engineering Ltd.                   
                                                                               
 CHAIRMAN HALFORD asked whether Michael Baker and Tri-Ocean were               
 outside companies.                                                            
                                                                               
 MR. FROM answered yes, but he thought Michael Baker had been here             
 for some time.                                                                
                                                                               
 Number 0270                                                                   
                                                                               
 REPRESENTATIVE RAMONA BARNES asked whether ASRC/Parsons Engineering           
 Ltd. was also an outside company joint venturing with ASRC; whether           
 Michael Baker has an office in Alaska with a business license; and            
 whether Tri-Ocean Engineering was in Canada.                                  
                                                                               
 MR. FROM answered yes to all three.  He said their purchasing                 
 strategy is to build the Alpine project in Alaska.  Throughout the            
 project, they will use competitive Alaskan suppliers and                      
 fabricators where they can.  He said Alaskan suppliers will compete           
 for project orders, and bids will be evaluated on life-cycle cost             
 basis that will include service, quality and the willingness to               
 meet their project goals as well as costs.                                    
                                                                               
 MR. FROM said they would utilize their current ARCO Alaska supplier           
 agreements both for identifying candidates for major project orders           
 and for orders not large enough to require a formal bidding                   
 process.  They currently have 28 master agreements with Alaskan               
 suppliers, and they have done business with 500 Alaskan suppliers             
 within the last year.  Most of the major processing and mechanical            
 equipment will be purchased directly from manufacturers.                      
                                                                               
 MR. FROM said Ken Thompson's slogan, "No decline after '99," is now           
 their plan.  He said it brings two new oil companies to Alaska -              
 Anadarko and Union Texas Petroleum.  He said the Alpine development           
 will bring to Alaska 850 construction jobs, approximately 50 full-            
 time jobs, approximately 50 drilling jobs for the first five years,           
 and $1 billion in state and local revenues.                                   
                                                                               
 REPRESENTATIVE BARNES asked Mr. From how long he has been in                  
 Alaska.                                                                       
                                                                               
 MR. FROM answered that he has been here this time since 1988.                 
                                                                               
 CHAIRMAN HALFORD asked what royalty rate the Native lands received,           
 to compare private sector with state royalties.                               
                                                                               
 MR. FROM said he didn't know.                                                 
                                                                               
 REPRESENTATIVE BARNES said she was very interested in the answer              
 also.                                                                         
                                                                               
 SENATOR LINCOLN asked whether it was going to be an easy task to              
 get the modules to where they are going.                                      
                                                                               
 MR. FROM answered that it is relatively easy.  They have built                
 modules up to 5,000 tons, and this whole project has a total of               
 7,000 tons of modules.  He said the modules are in the conceptual             
 stage right now.                                                              
                                                                               
 Number 0364                                                                   
                                                                               
 SENATOR LINCOLN asked why he added "where possible" to mitigating             
 the impacts on Nuiqsut.                                                       
                                                                               
 MR. FROM explained that they are building on gravel in places along           
 the Colville River, and that is "where possible" because they will            
 be in the subsistence hunting area.  He said they are working with            
 the village on this issue.                                                    
                                                                               
 SENATOR LINCOLN asked whether the Alaska suppliers were going to              
 compete amongst themselves for orders or with outside sources.                
                                                                               
 MR. FROM replied it just depends on the type of commodities they              
 are looking for.  He said where the Alaskan companies are                     
 competitive in price, service, and the ability to supply the goods,           
 they will utilize them to the maximum extent possible.                        
                                                                               
 REPRESENTATIVE BILL HUDSON asked whether it was his intention to              
 build the modules in Alaska.                                                  
                                                                               
 MR. FROM answered that was his intention, although they hadn't                
 selected a site yet.                                                          
                                                                               
 CHAIRMAN HALFORD asked Mr. From to provide the committee a                    
 breakdown of the approximate $1 billion in state and local revenues           
 in terms of what sources that comes through.                                  
                                                                               
 SENATOR BERT SHARP asked him to provide a map of the private and              
 state ownership pattern within the area to be explored.                       
                                                                               
 REPRESENTATIVE BARNES asked:  Since we know Alpine is next to the             
 National Petroleum Reserve, and since the State of Alaska gets none           
 of the funds - the 50 percent goes to the Native villages - how is            
 the gas to come from the National Petroleum Reserve and run through           
 the line they build for Alpine?                                               
                                                                               
 MR. FROM said he would get that information.                                  
                                                                               
 REPRESENTATIVE BARNES asked what interface he had with the new                
 module building industry in the Port of Anchorage, relating                   
 specifically to Northstar.  She wanted to know specifically what              
 ARCO was doing to make that a reality.                                        
                                                                               
 MR. FROM replied that they had toured the Port of Anchorage and               
 looked at the facilities, and now the project team is looking at              
 other facilities around Alaska.  They will be built in Alaska, but            
 not necessarily at the Port of Anchorage.                                     
                                                                               
 Number 439                                                                    
                                                                               
 ERIC LUTTRELL, Vice President, BP Exploration (Alaska)                        
 Incorporated, said this report is pre-lawsuit; he presented the               
 committee with a location map and a schematic overview of the                 
 Northstar project.  He said they still have a small working partner           
 with Murphy Oil and Gas.  Last year they thought the reserves were            
 going to be 130 million barrels and that the costs were going to be           
 about $350 million; so both the reserves and costs have                       
 subsequently gone up.                                                         
                                                                               
 MR. LUTTRELL said one of their statutory requirements was to                  
 sanction Northstar by May of 1997; they acquired funding in October           
 1996 and expect first oil to come mid-1999.  The second requirement           
 was to report quarterly on Alaskan residencies and hiring                     
 statistics, which they sent to the Department of Labor recently.              
 He said the supplement royalty at the current price would be 26.41            
 percent, more than twice the average royalty on the North Slope.              
                                                                               
 MR. LUTTRELL said they made the commitment to try and build                   
 Northstar in Alaska to the degree they thought it possible and help           
 create a new fabrication industry.  He said they are using VECO and           
 APC in Anchorage to build fabrications.  As a result of all the               
 commitments, he estimated they would spend $225 million in Alaska.            
 He reviewed a pie graph of the Alaskan content of the project.                
                                                                               
 CHAIRMAN HALFORD asked what vessel fabrication is.                            
                                                                               
 MR. LUTTRELL replied that in order to separate oil and gas, you               
 need to build very large vessels that are big tanks with valves and           
 other things attached to them.  It is very specialized, and no one            
 ever expected it to be done in Alaska.                                        
                                                                               
 REPRESENTATIVE BARNES asked him why big tanks could not be built in           
 Alaska.                                                                       
                                                                               
 MR. LUTTRELL said very specialized equipment was needed to roll the           
 steel in a big circle.                                                        
                                                                               
 REPRESENTATIVE BARNES said it seemed to her that if we can build              
 modules, we could buy material in big strips and fabricate them in            
 Alaska.                                                                       
                                                                               
 MR. LUTTRELL said the Alaskan content will not change relative to             
 the lawsuit; he reviewed the current status with the committee,               
 saying they deferred fabrication on 2/13/97.  The consequence is              
 that they will delay the sea-lift, which they intend to do in the             
 summer of 1998-1999.                                                          
                                                                               
 REPRESENTATIVE BARNES asked for the status of Duck Island.                    
                                                                               
 MR. LUTTRELL replied that the Endicott Field is in the Duck Island            
 unit.  In most cases, the field and the unit have the same name.              
                                                                               
 CHAIRMAN HALFORD asked whether there is anything they could do in             
 terms of timing or anything else to encourage the Northstar                   
 development to get back on track.                                             
                                                                               
 MR. LUTTRELL said he has been advised to let the courts take their            
 normal course.                                                                
                                                                               
 CHAIRMAN HALFORD asked:  If the state is successful at the superior           
 court level and it is appealed, would they wait for the appeal to             
 be decided before there is action?                                            
                                                                               
 MR. LUTTRELL said they will make decisions as they go along.                  
                                                                               
 SENATE TAPE 97-13, SIDE B                                                     
 Number 0006                                                                   
                                                                               
 MR. LUTTRELL answered a question from Representative Hudson, saying           
 they had deferred their position in line for things like                      
 compressors and turbines.                                                     
                                                                               
 REPRESENTATIVE HUDSON asked whether the compressors and things of             
 that nature were available in the U.S. or overseas.                           
                                                                               
 MR. LUTTRELL said he didn't know, but he thought most of it was in            
 the U.S.                                                                      
                                                                               
 REPRESENTATIVE BARNES asked whether the technology they are trying            
 to develop at the Port of Anchorage would be picked up at the point           
 that Northstar comes back on line.                                            
                                                                               
 MR. LUTTRELL said they have a lease and will scale back up when               
 they are in the position to go forward.  He said BP is going                  
 forward on Badami.  The long-lead items have been ordered, they               
 have the permits, and they are moving gravel on the Slope as he               
 speaks.  Drilling should start on Badami in September.  He wanted             
 to make it clear that they will not seek royalty relief for this              
 project.  He said they are working very closely with their partner,           
 FINA.  He reviewed a pie chart of the Alaskan content of Badami.              
                                                                               
 CHAIRMAN HALFORD said he noticed the fabrication is in the non-               
 Alaskan block.                                                                
                                                                               
 MR. LUTTRELL explained that the fabrication is actually in two                
 parts, with equal parts in Alaska and Canada.  He said they are               
 spending a total of $14 million in Canada.                                    
                                                                               
 REPRESENTATIVE FRED DYSON asked where in Canada the fabrication               
 would take place.                                                             
                                                                               
 MR. LUTTRELL responded that it would be built in Calgary and move             
 up the river for some additional work around the Hay River, and the           
 rest will come down the MacKenzie.                                            
                                                                               
 Number 0490                                                                   
                                                                               
 SENATOR LINCOLN asked whether Alaska hire statistics had gone up              
 from 1995 for BP.  She said she wanted to hear more about what                
 their goals were in this area, for example, working with                      
 contractors and vocational schools.                                           
                                                                               
 MR. LUTTRELL said he would get those details for her.                         
                                                                               
 CHAIRMAN HALFORD said he wanted to know from the Department of                
 Labor what is an acceptable percentage.                                       
                                                                               
 SENATOR SHARP asked for more information about their partner.                 
                                                                               
 MR. LUTTRELL said FINA is a Belgian Company that has extensive                
 Lower 48 production and has had leases in Alaska for 10 or 12                 
 years.  It was a partner with CONOCO on the original Badami                   
 discovery, and they are very excited about working with them.                 
                                                                               
 SENATOR LOREN LEMAN asked whether the engineering portion being               
 done in Canada was primarily associated with the fabrication being            
 done there or whether there was some other unique capability in               
 Canada in addition to that.                                                   
                                                                               
 MR. LUTTRELL replied they selected Colt Engineering when they first           
 put Badami together because they had the greatest amount of Arctic            
 experience.                                                                   
                                                                               
 SENATOR LEMAN asked whether they were working with any Alaskan                
 engineering companies too.                                                    
                                                                               
 MR. LUTTRELL answered that he understood they are trying to put               
 together a joint venture with an Alaskan firm, but it's not part of           
 what they are doing with Badami.                                              
                                                                               
 REPRESENTATIVE BARNES asked whether it was true when that firm was            
 selected, with all their expert Arctic experience, they proposed              
 drilling an underwater line that didn't work and now have to go               
 over-ground.                                                                  
                                                                               
 MR. LUTTRELL responded that the original conceptual work identified           
 the possibility of burying a line, but as they worked on it in more           
 detail with all the firms, they concluded that was probably not the           
 best or cheapest way; they now have an above-ground line.                     
                                                                               
 DWIGHT PERKINS, Special Assistant, Office of the Commissioner,                
 Department of Labor, read information on industry Alaska hire                 
 statistics in a letter from Commissioner Cashen to the committee.             
                                                                               
 CHAIRMAN HALFORD asked for an explanation of the sources of a                 
 statement in the letter.                                                      
                                                                               
 CHRIS MILLER, Research and Analysis, Division of Administrative               
 Services, Department of Labor, replied that they used the total               
 wages, from clerk to president, reported by those firms for all               
 employees to come up with a standard statistical mean.  The                   
 $100,000 is the oil majors and the $50,000 figure is everyone in              
 the oil industry.                                                             
                                                                               
 MR. PERKINS continued reading the letter.                                     
                                                                               
 REPRESENTATIVE BARNES asked for a copy of all the work documents              
 this working group has, including studies, notes on studies, and              
 anything related to the question of his report.  In addition, she             
 wanted to know if there are qualified oil field engineers in                  
 Alaska.                                                                       
                                                                               
 MR. PERKINS said he couldn't say, but Mr. Miller tracks that                  
 research and could get a round number.                                        
                                                                               
 REPRESENTATIVE BARNES said she always hears about engineering work            
 for new projects on the North Slope going out-of-state and out-of-            
 country, as well.  She said the question "why" needs to be                    
 answered.  She said she believed we have qualified engineers in               
 Alaska.                                                                       
                                                                               
 SENATOR ROBIN TAYLOR asked which operations were owned by Alaskan             
 corporations.                                                                 
                                                                               
 MR. PERKINS said he didn't know.                                              
                                                                               
 MR. MILLER said the ownership is on the tax file from which they              
 extracted information for their research.                                     
                                                                               
 SENATOR TAYLOR said he was shocked that some companies that                   
 advocated very strongly for Alaskan hire have some of the highest             
 numbers for nonresident employees.  He asked whether there wasn't             
 some sort of number the Department of Labor was aiming for in                 
 Alaska hire.                                                                  
                                                                               
 MR. PERKINS replied that he thought we had seen the peak of                   
 nonresident hire, and there has been a lack of new-hire jobs.                 
                                                                               
 CHAIRMAN HALFORD said he thought there should be some public policy           
 regarding a goal for a number for Alaska hire.                                
                                                                               
 REPRESENTATIVE REGGIE JOULE said his experience is that companies             
 keep the same employees from contract to contract for job security.           
                                                                               
                                                                               
 SENATOR LINCOLN noted that all the companies weren't on the list.             
                                                                               
 MR. PERKINS said they just took a sampling of the top 20.  He                 
 thought it would be important for the legislature to have a                   
 benchmark.                                                                    
                                                                               
 SENATOR LINCOLN asked how we are encouraging nonresidents to become           
 residents.                                                                    
                                                                               
 MR. MILLER responded that in permanent fund information they have             
 looked at, 14 percent of the folks they have determined to be                 
 nonresidents in one given year have turned up being residents the             
 next time they look.                                                          
                                                                               
 SENATOR LINCOLN asked for their definition of an Alaskan resident.            
 She also asked how much material Representative Barnes had asked              
 for.                                                                          
                                                                               
 MR. PERKINS said he hadn't attended those meetings, but he would              
 get together with Mr. Andrews and find out.                                   
                                                                               
 SENATOR LEMAN noted that page 3 mentions a pilot project to measure           
 Alaskan hire and asked if that was done in response to HB 548                 
 reporting to the legislature.                                                 
                                                                               
 MR. MILLER replied that the pilot project was a way to speed                  
 reporting in an electronic format using the Unemployment Insurance            
 (UI) data reporting process.                                                  
                                                                               
 CHAIRMAN HALFORD said he thought the Department of Labor should set           
 a standard for Alaska hire and in the process tell them what is the           
 correlation between companies, between union and non-union, et                
 cetera.                                                                       
                                                                               
 REPRESENTATIVE BARNES asked him to include a definition of what an            
 Alaskan business is, and she hoped it meant something other than              
 you have to have a business license hanging on the wall.                      
                                                                               
 REPRESENTATIVE IRENE NICHOLIA asked whether industry personnel                
 claiming residency could have the destinations for their two-week             
 breaks documented and made available as public information.                   
                                                                               
 CHAIRMAN HALFORD said he assumed if the permanent fund dividend               
 eligibility is really enforced, that would probably catch it.  He             
 told Mr. Perkins he wanted a definition and a base-line on Alaska             
 hire from the Department of Labor.                                            
                                                                               
 MR. PERKINS responded affirmatively.                                          
                                                                               
 SENATOR SHARP said he was still concerned that of all the                     
 contractors identified in the Alpine BP project, they have the                
 worst record of Alaska hire, and he hoped that had changed in the             
 last year.                                                                    
                                                                               
 CHAIRMAN HALFORD said they await their responses and adjourned the            
 meeting at 5:15 p.m.                                                          
                                                                               

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