Legislature(1995 - 1996)

02/07/1996 09:37 AM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
               HOUSE RESOURCES STANDING COMMITTEE                              
                        February 7, 1996                                       
                            9:37 a.m                                           
 MEMBERS PRESENT                                                               
 Representative Joe Green, Co-Chairman                                         
 Representative William K. "Bill" Williams, Co-Chairman                        
 Representative Scott Ogan, Vice Chairman                                      
 Representative Alan Austerman                                                 
 Representative John Davies                                                    
 Representative Pete Kott                                                      
 Representative Irene Nicholia                                                 
 MEMBERS ABSENT                                                                
 Representative Ramona Barnes                                                  
 Representative Don Long                                                       
 COMMITTEE CALENDAR                                                            
 HOUSE BILL NO. 325                                                            
 "An Act authorizing suspension of payment of a portion of the                 
 royalty due the state for initial production of heavy oil from                
 wells on the Arctic Slope."                                                   
      - PASSED HB 325 OUT OF COMMITTEE                                         
 *HOUSE BILL NO. 313                                                           
 "An Act relating to fees for big game tags for wolves; and                    
 providing for an effective date."                                             
      - HEARD AND HELD                                                         
 (* First Public Hearing)                                                      
 PREVIOUS ACTION                                                               
 BILL:  HB 325                                                               
 SPONSOR(S): REPRESENTATIVE(S) GREEN                                           
 JRN-DATE     JRN-PG            ACTION                                         
 04/28/95      1633    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 04/28/95      1633    (H)   OIL & GAS, RESOURCES, FINANCE                     
 10/17/95              (H)   O&G AT  1:00 PM ANCHORAGE LIO                     
 10/17/95              (H)   MINUTE(O&G)                                       
 11/14/95              (H)   O&G AT  2:00 PM ANCHORAGE LIO                     
 11/14/95              (H)   MINUTE(O&G)                                       
 01/18/96              (H)   O&G AT 10:00 AM CAPITOL 124                       
 01/18/96              (H)   MINUTE(O&G)                                       
 01/23/96              (H)   O&G AT  9:00 AM CAPITOL 124                       
 01/23/96              (H)   MINUTE(O&G)                                       
 01/24/96      2522    (H)   O&G RPT  CS(O&G) NT  5DP  1DNP  1NR               
 01/24/96      2522    (H)   DP:  OGAN, ROKEBERG, WILLIAMS, BRICE,             
 01/24/96      2522    (H)   B.DAVIS                                           
 01/24/96      2522    (H)   DNP:  FINKELSTEIN                                 
 01/24/96      2522    (H)   NR:  G.DAVIS                                      
 01/24/96      2522    (H)   2 FISCAL NOTES (DNR, DOR)                         
 01/26/96              (H)   RES AT  8:00 AM CAPITOL 124                       
 01/26/96              (H)   MINUTE(RES)                                       
 02/07/96              (H)   RES AT 8:00 AM CAPITOL 125                        
 BILL:  HB 313                                                               
 SHORT TITLE: BIG GAME TAGS FOR WOLVES                                         
 SPONSOR(S): REPRESENTATIVE(S) OGAN                                            
 JRN-DATE     JRN-PG     ACTION                                                
 04/20/95      1399    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 04/20/95      1399    (H)   RESOURCES, FINANCE                                
 02/07/96              (H)   RES AT  8:00 AM CAPITOL 124                       
 WITNESS REGISTER                                                              
      - THERE WERE NO WITNESSES                                                
 ACTION NARRATIVE                                                              
 TAPE 96-14, SIDE A                                                            
 Number 000                                                                    
 CO-CHAIRMAN JOE GREEN called the House Resources Committee meeting            
 to order at 9:37 a.m.  Members present at the call to order were              
 Representatives Green, Williams, Ogan, Austerman, Davies and                  
 Nicholia.  Representatives Barnes, Kott, and Long were absent.                
 CO-CHAIRMAN GREEN apologized for the delay of meeting and stated              
 that the committee would hear HB 325 and HB 313.                              
 HB 325 - ROYALTY SUSPENSION: NORTH SLOPE HEAVY OIL                          
 Number 073                                                                    
 REPRESENTATIVE JOHN DAVIES moved for the adoption of his proposed             
 CO-CHAIRMAN GREEN objected for the purposes of discussion.                    
 Number 110                                                                    
 REPRESENTATIVE DAVIES said the main thrust of his amendment is                
 patterned after HB 207 and provides that the commissioner makes the           
 decision whether a grant of royalty holiday or reduction would be             
 in order.                                                                     
 REPRESENTATIVE DAVIES said his concern about the process as                   
 proposed in CSHB 325 is that the legislature makes the decision               
 whether it is in the economic interest of the state to grant the              
 five year royalty holiday.  Under HB 207, there is a mechanism to             
 find out what the detailed economics of the proposal are to                   
 understand the company's position with respect to whether it is               
 truly a marginal field.                                                       
 Number 222                                                                    
 REPRESENTATIVE DAVIES referred to his two-page amendment:                     
 Page 1, line 1:  Delete "exemption from payment of royalty"  Insert           
 "modification of royalty due."                                                
 His said the amendment provides that the tax holiday might be a one           
 percent royalty rather than a zero royalty.                                   
 Number 267                                                                    
 REPRESENTATIVE DAVIES said the principal part of the amendment is:            
 Page 2, following line 18.  Insert a new subparagraph to read"                
 "(A) demonstrates to the satisfaction of the Legislative Budget and           
 Audit Committee, hereinafter "committee", that modification of                
 royalty due under this subsection is reasonably necessary to allow            
 for oil production from the lease that would not otherwise be                 
 feasible; as a condition of meeting the requirement set out in this           
 subparagraph, the committee may require the lessee making                     
 application for the royalty modification to pay for the services of           
 an independent contractor, qualified to evaluate hydrocarbon                  
 development, production, transportation, and economics, who is                
 selected by the committee to assist in evaluating the application             
 and financial and technical data; selection of an independent                 
 contractor under this subparagraph is not subject to AS 36.30.020;            
 if, on the basis of the lessee's application, the report of the               
 independent contractor, and other evidence of record, the committee           
 finds a modification from payment of royalty under this subsection            
 is reasonably necessary to allow for the production of the oil from           
 the lease, the committee shall submit a joint resolution                      
 authorizing the modification; the modification shall take effect              
 upon adoption of the resolution by both houses of the legislature;            
 REPRESENTATIVE DAVIES said the language is modeled from the                   
 language in HB 207 which requires a company requesting an exemption           
 to come before the Legislative Budget and Audit Committee (LB&A).             
 The LB&A would, under this amendment, be allowed to subcontract               
 with an independent, experienced oil contractor to evaluate the               
 proposal in full detail.  The committee would submit a joint                  
 resolution to the legislature and upon adoption of the joint                  
 resolution, the royalty modification would be in effect.                      
 REPRESENTATIVE DAVIES continued, without some kind of procedure               
 like this, the legislature simply does not have the detailed                  
 knowledge to know whether it is in the best interest of the people            
 of Alaska to make this modification.  Without going through this              
 step, we can not reasonably say to ourselves and our constituents             
 that we have examined the issue carefully enough on both sides to             
 make a reasonable determination.                                              
 Number 433                                                                    
 CO-CHAIRMAN WILLIAMS felt that the Legislative Budget and Audit               
 procedure might not be that expedient.                                        
 REPRESENTATIVE DAVIES said the way the amendment is worded, the               
 legislature would make that determination.  He talked about a delay           
 of half a year in a project where people have spent years trying to           
 determine if it is feasible and where the development of the fields           
 will take years and may be in production for 40 years.  He said,              
 for us to take six months to consider that when we are talking                
 about a multi-million, maybe billion, dollar deal, that six months            
 contemplation is probably not out of order.                                   
 Number 590                                                                    
 CO-CHAIRMAN GREEN appraised Co-Chairman Williams concern to mean              
 that if there was no determination by LB&A during that summer or in           
 ample time for contracts to be let, the legislature would have to             
 come back in session and make that decision, the applicant will               
 miss the drilling window in the winter and maybe lose a year                  
 instead of six months.                                                        
 CO-CHAIRMAN GREEN explained that the individuals spending the money           
 have concerns and they have to go to their board for approval.  If            
 they go to the board this year for a process that may not be                  
 determined until next year, and then it is uncertain on a well-by-            
 well basis, it has a dampening effect in the board room.                      
 Number 684                                                                    
 C0-CHAIRMAN GREEN expressed a feeling that the oil companies might            
 go to Canada or Venezuela where they know what the ground rules and           
 risk potentials are.  He said other countries do make these                   
 concessions.  He said the industry prefers to know or to have a               
 one, two or three percent royalty floor than to just leave it open            
 because they kept their infrastructure going and drilled a certain            
 number of wells.                                                              
 Number 812                                                                    
 REPRESENTATIVE DAVIES responded that the oil companies could make             
 that case to the Legislative Budget & Audit Committee.  The LB&A              
 would be able to make that determination and say that we would set            
 the royalty at whatever level it was that pencilled out.  The way             
 we have passed the bill now it is a blank check.  It is not only a            
 blank check for the companies that are before us right now that               
 have showed us a little bit of data, not enough to make a                     
 reasonable decision on, but for any company that comes in in the              
 future.  We are saying it is a zero royalty for every company that            
 meets the 20 API test.                                                        
 REPRESENTATIVE DAVIES said, from the people of the state of                   
 Alaska's point of view, we need to know that this is a deal that              
 makes sense.  This is the people of Alaska's oil.  We represent               
 them and, under these terms, it would literally be the legislature            
 that is making the decision; the final determination as to whether            
 we grant the royalty reduction or tax holiday.  We have a duty to             
 the people of Alaska to make sure it pencils out from their point             
 of view.                                                                      
 NUMBER 933                                                                    
 CO-CHAIRMAN GREEN asked for a motion to adopt the committee                   
 substitute as a working document.                                             
 REPRESENTATIVE OGAN moved to adopt the committee substitute for HB
 325.  There being no objection, it was so ordered.                            
 Number 1010                                                                   
 CO-CHAIRMAN GREEN explained that in the committee substitute there            
 is a time limit for which this opportunity exists.  The House                 
 Special Committee on Oil and Gas, like Representative Davies, felt            
 that this should not be "carte blanche" forever.  It should be for            
 a restricted period of time.                                                  
 CO-CHAIRMAN GREEN alluded to comments made by Representative Davies           
 about requesting information from the oil companies and not                   
 receiving enough information for him to make a decision.  He said,            
 therein, lies part of the uncertainty.  How long will it be in the            
 following years meeting of the legislature that there will not have           
 been enough information presented and the oil companies miss                  
 another drilling season.  That is the uncertainty the operators are           
 concerned about.                                                              
 CO-CHAIRMAN GREEN expressed concern that getting caught up in the             
 economics of this issue may eventually become a quagmire.  He said            
 there is a feeling that, on a well-by-well basis, we are giving               
 away the farm to try and prove up the billions of barrels of heavy            
 crude oil that are still available.  Rather than leaving this                 
 provision open it may be better to put a floor in and say, okay,              
 the state will get something for every barrel that is produced.               
 Number 1096                                                                   
 REPRESENTATIVE DAVIES felt that industry can make its pitch to the            
 legislature in terms of the urgency of getting a decision made.               
 That is part of the calculation that we as representatives of the             
 people of Alaska will make, and we are perfectly capable of coming            
 to the conclusion that it is urgent to get the decision made, one             
 way or the other.  If we see that that is a large factor in whether           
 this decision gets made favorably to develop the heavy oil in the             
 North Slope, we will make the process move along.  We have the                
 capacity to do that.                                                          
 Number 1151                                                                   
 REPRESENTATIVE DAVIES said he understands the chairman's concern              
 about uncertainty, but felt that if that was a true concern, the              
 legislature can respond to that.                                              
 Number 1201                                                                   
 CO-CHAIRMAN GREEN said it is important to understand that in a much           
 more favorable province, the state passed legislation in the large            
 block leasing program and nobody came forward.  He said we then               
 went to HB 207 last year and, again, nobody has come forward.                 
 CO-CHAIRMAN GREEN emphasized that this legislation is the third               
 attempt and if this bill were passed, there is an activity that               
 would go forward.  What I think we need is some proof that there is           
 a way to produce or keep alive the field testing of theory and lab.           
 If we leave this in a state of flux, it will, like the other two              
 incentive bills, languish, may die, and it may be a while before              
 anybody comes forward to try and do something in the field on heavy           
 oil production.                                                               
 Number 1267                                                                   
 C0-CHAIRMAN GREEN talked about the limited amount of reserves of 25           
 - 40 billion barrels. He said that is a drop in the bucket compared           
 to Canada and that is not even in the same room as the bucket with            
 Venezuela.  If the state does not continue the current activity               
 which we have already been shown, then there is no program.    He             
 stated that if we leave that to die, we are doing a tremendous                
 disservice to the people of the state because then we leave this 40           
 billion barrels of oil unfield tested in our harsh conditions and             
 that would be travesty.                                                       
 Number 1318                                                                   
 REPRESENTATIVE OGAN said he opposed Representative Davies amendment           
 for several reasons.  We have a track record of two other companies           
 that have tried and failed to develop this oil.  Five years from              
 now is when we are going to need significant additional revenues.             
 Oil and resource development is certainly a major portion to offset           
 this decline and more oil in the pipeline during that time will               
 enhance the revenues of the existing oil that is being pumped                 
 because as production goes down, transportation costs go up and               
 those transportation costs come out of the state's royalty.                   
 Number 1395                                                                   
 REPRESENTATIVE DAVIES said the urgency is there, but it is in the             
 interest of the people of Alaska for us to look more closely at the           
 economics than we have.                                                       
 Number 1400                                                                   
 CO-CHAIRMAN GREEN asked for a roll call vote.  Representatives                
 Davies and Nicholia voted in favor of the amendment.                          
 Representatives Austerman, Kott, Green, Ogan and Williams voted               
 against the amendment.  The amendment failed.                                 
 Number 1449                                                                   
 REPRESENTATIVE OGAN moved that CSHB 325 move from the House                   
 Resources Committee with individual recommendations and attached              
 fiscal note.  There was an objection so a roll call vote was taken.           
 Representatives Austerman, Kott, Ogan, Williams and Green voted in            
 favor of moving the bill.  Representatives Davies and Nicholia                
 voted against moving the bill.  So CSHB 325 moved from committee.             
 CO-CHAIRMAN GREEN said there was time to take testimony on HB 313.            
 HB 313 - BIG GAME TAGS FOR WOLVES                                           
 Number 1481                                                                   
 REPRESENTATIVE OGAN said HB 313 was introduced as a management tool           
 to enable the Department of Fish and Game and the Board of Game to            
 manage predators in a way that would be acceptable to all parties.            
 REPRESENTATIVE OGAN said the bill lowers the price of a wolf tag              
 for a nonresident from $175.00 to $10.00 and for a nonresident                
 alien from $250.00 to $15.00.  He said HB 313 will increase the               
 incidental take of wolves, it will allow the Board of Game to                 
 manage the resource by opening and closing the seasons and it is a            
 practical way to deal with the problem.                                       
 Number 1577                                                                   
 REPRESENTATIVE PETE KOTT asked if the effective date was still                
 REPRESENTATIVE OGAN moved that the effective date be January 1,               
 Number 1607                                                                   
 REPRESENTATIVE IRENE NICHOLIA asked for the fiscal note.                      
 Number 1637                                                                   
 CO-CHAIRMAN WILLIAMS recalled that SB 81, intensive game                      
 management, passed from committee with a $75.0 fiscal note.  He               
 said HB 313 has a $42.5 fiscal note and he does not understand                
 where the committee is headed with this bill.                                 
 Number 1660                                                                   
 REPRESENTATIVE OGAN said there had been a tremendous amount of                
 money spent on failed management attempts in the past.  He felt HB
 313 provides a cost effective management tool.  There is another              
 bill that deals with wolf management that has a higher fiscal note            
 and it is prudent to pass this one as well and see which one the              
 public and  the legislature feel will be most appropriate.                    
 Number 1711                                                                   
 REPRESENTATIVE NICHOLIA said she wanted to hear from the Department           
 of Fish and Game before the committee took action on the bill.                
 Number 1742                                                                   
 REPRESENTATIVE DAVIES said his understanding was that the committee           
 was only going to hear HB 325 at today's meeting.  He said he would           
 also like to hear from the Department of Fish and Game.                       
 REPRESENTATIVE AUSTERMAN said he also wanted to hear from the                 
 Department of Fish and Game how this bill interacts with the other            
 wolf management legislation.                                                  
 Number 1800                                                                   
 REPRESENTATIVE OGAN said he had no objection to holding the bill.             
 There being no further business to come before the House Resources            
 Committee, Chairman Green adjourned the meeting at 10:08 a.m.                 

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