Legislature(1995 - 1996)
02/07/1996 09:37 AM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 SHORT TITLE: ROYALTY SUSPENSION: N. SLOPE HEAVY OIL 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 amendment. 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; and" 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 valid. REPRESENTATIVE OGAN moved that the effective date be January 1, 1997. 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. ADJOURNMENT There being no further business to come before the House Resources Committee, Chairman Green adjourned the meeting at 10:08 a.m.