Legislature(2003 - 2004)

05/14/2003 08:15 AM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                          May 14, 2003                                                                                          
                           8:15 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Hugh Fate, Chair                                                                                                 
Representative Carl Gatto                                                                                                       
Representative Cheryll Heinze                                                                                                   
Representative Carl Morgan                                                                                                      
Representative Kelly Wolf                                                                                                       
Representative Sharon Cissna                                                                                                    
Representative David Guttenberg                                                                                                 
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Beverly Masek, Vice Chair                                                                                        
Representative Bob Lynn                                                                                                         
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 246                                                                                                              
"An Act relating to the limitation on upland acreage that a                                                                     
person may take or hold under oil and gas leases; and providing                                                                 
for an effective date."                                                                                                         
                                                                                                                                
     - MOVED CSHB 246(RES) OUT OF COMMITTEE                                                                                     
                                                                                                                                
CS FOR SENATE BILL NO. 56(FIN)                                                                                                  
"An Act relating to sport fishing license fees and anadromous                                                                   
king salmon tag fees for residents of Yukon, Canada; and                                                                        
providing for an effective date."                                                                                               
                                                                                                                                
     - MOVED CSSB 56(FIN) OUT OF COMMITTEE                                                                                      
                                                                                                                                
HOUSE BILL NO. 196                                                                                                              
"An Act relating to carbon sequestration; and providing for an                                                                  
effective date."                                                                                                                
                                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
                                                                                                                                
PREVIOUS ACTION                                                                                                               
                                                                                                                                
BILL: HB 246                                                                                                                  
SHORT TITLE:OIL & GAS AUDITS & ACREAGE LIMITS                                                                                   
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR                                                                                      
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
04/04/03     0783       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
04/04/03     0783       (H)        O&G, RES                                                                                     
04/04/03     0783       (H)        FN1: INDETERMINATE(DNR)                                                                      
04/04/03     0784       (H)        GOVERNOR'S TRANSMITTAL LETTER                                                                
04/24/03                (H)        O&G AT 3:15 PM CAPITOL 124                                                                   
04/24/03                (H)        Scheduled But Not Heard                                                                      
04/29/03                (H)        O&G AT 3:15 PM CAPITOL 124                                                                   
04/29/03                (H)        Moved Out of Committee                                                                       
04/29/03                (H)        MINUTE(O&G)                                                                                  
04/30/03     1200       (H)        O&G RPT 5DP                                                                                  
04/30/03     1200       (H)        DP: HOLM, KERTTULA, CRAWFORD,                                                                
                                   FATE,                                                                                        
04/30/03     1200       (H)        KOHRING                                                                                      
04/30/03     1201       (H)        FN1: INDETERMINATE(DNR)                                                                      
05/05/03                (H)        RES AT 1:00 PM CAPITOL 124                                                                   
05/05/03                (H)        <Bill Hearing Postponed to                                                                   
                                   05/07/03>                                                                                    
05/07/03                (H)        RES AT 8:00 AM CAPITOL 124                                                                   
05/07/03                (H)        Scheduled But Not Heard                                                                      
05/07/03                (H)        RES AT 1:30 PM CAPITOL 124                                                                   
05/07/03                (H)        Scheduled But Not Heard                                                                      
05/09/03                (H)        RES AT 8:00 AM CAPITOL 124                                                                   
05/09/03                (H)        Scheduled But Not Heard                                                                      
05/12/03                (H)        RES AT 1:00 PM CAPITOL 124                                                                   
05/12/03                (H)        Scheduled But Not Heard                                                                      
05/14/03                (H)        RES AT 8:00 AM CAPITOL 124                                                                   
                                                                                                                                
BILL: SB 56                                                                                                                   
SHORT TITLE:SPORT FISHING FEES FOR YUKON RESIDENTS                                                                              
SPONSOR(S): SENATOR(S) DYSON                                                                                                    
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
02/03/03     0106       (S)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
02/03/03     0106       (S)        RES, FIN                                                                                     
04/28/03                (S)        RES AT 3:30 PM BUTROVICH 205                                                                 
04/28/03                (S)        Scheduled But Not Heard                                                                      
04/30/03                (S)        RES AT 3:30 PM BUTROVICH 205                                                                 
04/30/03                (S)        Moved Out of Committee                                                                       
04/30/03                (S)        MINUTE(RES)                                                                                  
05/01/03     1071       (S)        RES RPT 3DP 2NR                                                                              
05/01/03     1071       (S)        DP: WAGONER, SEEKINS, STEVENS                                                                
                                   B;                                                                                           
05/01/03     1071       (S)        NR: LINCOLN, ELTON                                                                           
05/01/03     1071       (S)        FN1: (DFG)                                                                                   
05/08/03     1245       (S)        FIN RPT CS 2DP 1DNP 4NR NEW                                                                  
                                   TITLE                                                                                        
05/08/03     1245       (S)        DP: WILKEN, STEVENS B; NR:                                                                   
                                   GREEN,                                                                                       
05/08/03     1245       (S)        TAYLOR, HOFFMAN, OLSON; DNP:                                                                 
                                   BUNDE                                                                                        
05/08/03     1245       (S)        FN1: (DFG)                                                                                   
05/08/03                (S)        FIN AT 9:00 AM SENATE FINANCE                                                                
                                   532                                                                                          
05/08/03                (S)        Moved CSSB 56(FIN) Out of                                                                    
                                   Committee                                                                                    
05/08/03                (S)        MINUTE(FIN)                                                                                  
05/10/03     1304       (S)        RULES TO CALENDAR 5/10/2003                                                                  
05/10/03     1304       (S)        READ THE SECOND TIME                                                                         
05/10/03     1305       (S)        FIN CS ADOPTED Y13 N6 E1                                                                     
05/10/03     1305       (S)        ADVANCED TO THIRD READING                                                                    
                                   5/11 CALENDAR                                                                                
05/11/03     1322       (S)        READ THE THIRD TIME CSSB                                                                     
                                   56(FIN)                                                                                      
05/11/03     1323       (S)        PASSED Y17 N2 E1                                                                             
05/11/03     1323       (S)        EFFECTIVE DATE(S) SAME AS                                                                    
                                   PASSAGE                                                                                      
05/11/03     1326       (S)        TRANSMITTED TO (H)                                                                           
05/11/03     1326       (S)        VERSION: CSSB 56(FIN)                                                                        
05/12/03     1553       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
05/12/03     1553       (H)        RES, FIN                                                                                     
05/12/03     1580       (H)        CROSS SPONSOR(S): GRUENBERG                                                                  
05/14/03                (H)        RES AT 8:00 AM CAPITOL 124                                                                   
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
MARK MYERS, Director                                                                                                            
Division of Oil & Gas                                                                                                           
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Presented HB 246 and answered questions.                                                                   
                                                                                                                                
SENATOR FRED DYSON                                                                                                              
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as sponsor of SB 56.                                                                             
                                                                                                                                
GORDY WILLIAMS, Legislative Liaison                                                                                             
Office of the Commissioner                                                                                                      
Alaska Department of Fish & Game (ADF&G)                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified on  SB 56, highlighting fiscal and                                                               
public policy issues; answered questions.                                                                                       
                                                                                                                                
ROB BENTZ, Deputy Director                                                                                                      
Division of Sport Fish                                                                                                          
Alaska Department of Fish & Game                                                                                                
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions relating to SB 56.                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 03-45, SIDE A                                                                                                            
Number 0001                                                                                                                     
                                                                                                                                
CHAIR  HUGH FATE  called the  House Resources  Standing Committee                                                             
meeting  to order  at 8:15  a.m.   Representatives Fate,  Heinze,                                                               
Morgan,  Wolf, and  Cissna were  present  at the  call to  order.                                                               
Representatives Guttenberg  and Gatto arrived as  the meeting was                                                               
in progress.                                                                                                                    
                                                                                                                                
HB 246-OIL & GAS AUDITS & ACREAGE LIMITS                                                                                      
                                                                                                                                
Number 0075                                                                                                                     
                                                                                                                                
CHAIR FATE  announced that the  first order of business  would be                                                               
HOUSE BILL NO. 246, "An Act  relating to the limitation on upland                                                               
acreage that a person may take  or hold under oil and gas leases;                                                               
and providing  for an effective  date."  [The bill  was sponsored                                                               
by  the  House  Rules  Standing   Committee  by  request  of  the                                                               
governor.]                                                                                                                      
                                                                                                                                
Number 0275                                                                                                                     
                                                                                                                                
REPRESENTATIVE  MORGAN  moved  to adopt  the  proposed  committee                                                               
substitute (CS),  Version 23-GH1135\D,  Chenoweth, 5/13/03,  as a                                                               
work draft.  [No objection was  stated, and Version D was treated                                                               
as adopted.]                                                                                                                    
                                                                                                                                
Number 0352                                                                                                                     
                                                                                                                                
MARK  MYERS,  Director, Division  of  Oil  & Gas,  Department  of                                                               
Natural Resources (DNR),  explained that HB 246  has two distinct                                                               
parts.   First, it  expands allowable acreage  that can  be under                                                               
lease by an  individual company.  Current statute  limits this to                                                               
500,000 acres  of non-unitized upland state  lands.  Highlighting                                                               
a  recent   history  of  new   exploration  programs,   he  cited                                                               
exploration licensing and shallow gas  leasing in the North Slope                                                               
foothills area, indicating such  areas traditionally haven't seen                                                               
a lot  of interest.   It is believed  the original intent  of the                                                               
500,000 acres  was from  looking at  a more  restricted statewide                                                               
program, but  now there  are companies at  or near  their acreage                                                               
limitations that are "good explorers," he told members.                                                                         
                                                                                                                                
MR. MYERS  related the belief  that if the acreage  limitation is                                                               
extended, more  acreage will be  sold, there will  be stimulation                                                               
of exploration licenses  in the Interior basins,  and the shallow                                                               
gas leasing  program potentially  will be  helped by  adding more                                                               
"players."   He  explained that  three companies  are at  or near                                                               
their  acreage  limitations:     Anadarko  Petroleum  Corporation                                                               
("Anadarko");  Petro-Canada;  and   ConocoPhillips  Alaska,  Inc.                                                               
("ConocoPhillips"), which is near 400,000  acres and has at times                                                               
been at the  limit, as has BP [Exploration  (Alaska) Inc.], which                                                               
is  selling its  acreage now.   Passing  around copies  of a  map                                                               
showing  current state  leases, he  said there  remains a  lot of                                                               
acreage to lease and remarked, "We think this will help."                                                                       
                                                                                                                                
MR. MYERS explained  that the Umiat Meridian is  important to the                                                               
bill because  the additional 250,000  incremental acres  given to                                                               
companies  must  be  south  of that  line;  there  were  concerns                                                               
relating   to  the   original  500,000   acres  about   having  a                                                               
monopolistic approach on  the North Slope, and  the limitation is                                                               
to  keep it  from  being owned  by  one or  two  companies.   The                                                               
additional  acreage will  be in  primarily "frontier  exploration                                                               
areas" where  a company  needs a  large amount of  land to  get a                                                               
good  commercial position  in order  to  justify the  "integrated                                                               
economics"  to develop  the infrastructure  to actually  produce.                                                               
He concluded:                                                                                                                   
                                                                                                                                
     So we think it provides  the proper balance between ...                                                                    
     preventing potential conflict  of ... monopolization of                                                                    
     the central  North Slope,  the upper,  more prospective                                                                    
     oil areas, but allows for  more folks to be involved in                                                                    
     exploration   licenses,   shallow   gas   leases,   and                                                                    
     conventional leases south of that line.                                                                                    
                                                                                                                                
Number 0650                                                                                                                     
                                                                                                                                
CHAIR FATE  referred to the  mention of shallow gas  and surmised                                                               
that this  would include other  areas of  the state south  of the                                                               
Umiat Meridian, even in Cook Inlet, for example.                                                                                
                                                                                                                                
MR. MYERS affirmed  that.  He said it also  would allow companies                                                               
that have used almost all their  acreage on the North Slope to be                                                               
able to buy onshore acreage in Cook Inlet.  He added:                                                                           
                                                                                                                                
     Again, we don't see a  great synergy between Cook Inlet                                                                    
     and the North Slope.   They're pretty different basins.                                                                    
     They produce  into different markets.   And  Cook Inlet                                                                    
     oil,  for  example,  is  all  refined  locally,  so  it                                                                    
     doesn't really  compete with that  oil going  down TAPS                                                                    
     [Trans-Alaska Pipeline System],  which is predominantly                                                                    
     exported.                                                                                                                  
                                                                                                                                
Number 0699                                                                                                                     
                                                                                                                                
CHAIR FATE  asked whether  250,000 acres is  in addition  to what                                                               
the company  would have  if it's  at or near  capacity.   He also                                                               
asked whether  there is  enough land  in the  Cook Inlet  area or                                                               
enough hydrocarbon basins to facilitate that much acreage.                                                                      
                                                                                                                                
MR. MYERS said  that's a very good question.   Referring again to                                                               
the  map, he  pointed out  green outlines  of sedimentary  basins                                                               
that  would be  eligible for  licenses or  potentially for  lease                                                               
sales if the  department chose to go through  the "best interest"                                                               
process for leases.  Indicating the  state has been selling a lot                                                               
of  exploration  licenses, he  said  a  company picks  up,  under                                                               
licenses, up  to 500,000  acres in  an individual  block.   For a                                                               
company  that  has bought  a  license  and  converted it  all  to                                                               
leases,  its entire  statewide allotment  would be  used in  that                                                               
single license.  This bill would  allow such a company to pick up                                                               
a  reasonable portion  if it  had  one license  and a  reasonably                                                               
loose  position  elsewhere,  for  example.   "So  we  think  it's                                                               
balanced, and we think it will help us sell leases," he said.                                                                   
                                                                                                                                
MR. MYERS  pointed out that for  this part of the  bill, there is                                                               
an indeterminate  positive fiscal  note; he  opined that  it will                                                               
only lead to additional revenue.                                                                                                
                                                                                                                                
Number 0778                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HEINZE  asked   whether,  under  the  exploration                                                               
license, it's 500,000 [acres].                                                                                                  
                                                                                                                                
MR. MYERS affirmed that it's a maximum of 500,000.  He added:                                                                   
                                                                                                                                
     That  does  not count  against  your  leases until  you                                                                    
     convert to  leases.   There's a  license. ...  It's not                                                                    
     leased land.  They have  no rights of production.  They                                                                    
     have exclusive right to convert  to leases, though. ...                                                                    
     If they  convert, then, that would  count against their                                                                    
     statewide [limit].                                                                                                         
                                                                                                                                
Number 0813                                                                                                                     
                                                                                                                                
REPRESENTATIVE  CISSNA  recalled  other  leases such  as  in  the                                                               
Katalla area and  elsewhere.  She noted that  those aren't marked                                                               
[on the map].                                                                                                                   
                                                                                                                                
MR.  MYERS   replied  that  there's  a   small,  privately  owned                                                               
concession around  the Katalla  oil field  that was  selected, to                                                               
his  belief, by  a  Native  corporation; it's  a  tiny amount  of                                                               
acreage specific to that one small  field, too small to show on a                                                               
map of this scale,  and there is no state lease  or interest.  In                                                               
regard to other small, possibly prospective areas, he said:                                                                     
                                                                                                                                
     Basically,  there's  multiple   different  ...  leasing                                                                    
     programs  that   are  active.    One   is  the  federal                                                                    
     government, which  looks at the  offshore waters  - the                                                                    
     Minerals  Management  Service.     So  the  OCS  [outer                                                                    
     continental shelf],  they're contemplating  ... working                                                                    
     a five-year  schedule for Alaska, particularly  for the                                                                    
     Beaufort Sea,  lower Cook Inlet  areas, and  looking at                                                                    
     Norton  Sound and  other areas,  to revive  interest in                                                                    
     those areas.   I  think they'll  have some  interest in                                                                    
     the lower  Cook Inlet.   They certainly will  have some                                                                    
     interest  in  the  Beaufort Sea  area  -  onshore,  the                                                                    
     Bureau  of Land  Management and  particularly in  NPR-A                                                                    
     [National  Petroleum Reserve-Alaska]  -  and then  they                                                                    
     have  onshore acreage,  federal  acreage,  in the  Cook                                                                    
     Inlet  in  particular.    So   ...  they  have  active,                                                                    
     producing  [areas] on  federal  lands ...  in the  Cook                                                                    
     Inlet [area].                                                                                                              
                                                                                                                                
     I  think other  areas that  have significant  petroleum                                                                    
     potential,  particularly for  gas,  are  in the  Nenana                                                                    
     basin, Copper  River basin, Susitna  basin.   And those                                                                    
     areas  are  highlighted  by  the  exploration  licenses                                                                    
     already  there.    In  addition, if  you  look  in  the                                                                    
     Bristol Bay  area, there's both  oil and  gas potential                                                                    
     onshore as well  as offshore.  And then as  you move to                                                                    
     the north, you can see  ... north and east of Fairbanks                                                                    
     there's the  Yukon-Kandik basin, which is  the one that                                                                    
     kind of  hinges over  to the  Canadian basin;  that has                                                                    
     ... definitely some oil potential,  as well as some gas                                                                    
     potential.    And  then  the   Yukon  Flats,  near  the                                                                    
     wildlife  refuge   to  the  north  of   that,  is  also                                                                    
     (indisc.--papers  over   microphone)  prospective,  ...                                                                    
     both oil and gas.                                                                                                          
                                                                                                                                
Number 0995                                                                                                                     
                                                                                                                                
CHAIR FATE  noted that those  are outlined  in green on  the map.                                                               
He  then said  this is  an extremely  important bill  to the  oil                                                               
industry and  to the  state because the  leases not  only enhance                                                               
exploration, but also provide revenue from the leases.                                                                          
                                                                                                                                
Number 1025                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG asked about the difference between                                                                    
unitized and non-unitized acreage.                                                                                              
                                                                                                                                
MR. MYERS explained:                                                                                                            
                                                                                                                                
     The entitlement  was ...  designed for  exploration, so                                                                    
     that once  it's in a  unit, it's typically either  in a                                                                    
     plan of exploration or a  plan of development.  Most of                                                                    
     our  units  are  in  a plan  of  development,  so  it's                                                                    
     actually  in development  and the  acreage  is held  by                                                                    
     that plan of development.   So it's extended beyond the                                                                    
     primary term of the lease.                                                                                                 
                                                                                                                                
     Leases that are  put into units have  a negotiated work                                                                    
     plan  with  the  state.    And  they  have,  typically,                                                                    
     production going on in them.   So ... that acreage does                                                                    
     not count  against the statewide  entitlement.   So you                                                                    
     put  [it] in  a unit;  it's another  way that  ... your                                                                    
     credits on exploration acreage goes down.                                                                                  
                                                                                                                                
     But  there's ...  a hook  there, which  is part  of our                                                                    
     responsibility  to make  sure that  once it  goes in  a                                                                    
     unit,  we're   extending  those  leases   beyond  their                                                                    
     primary terms,  that we haven't agreed  to work planned                                                                    
     toward development,  which typically  includes shooting                                                                    
     seismic [data], then  drilling wells.  So  it locks the                                                                    
     land up,  but there is  a distinct work  commitment ...                                                                    
     and a work in progress.                                                                                                    
                                                                                                                                
     When you  buy [an] exploration lease,  typically in the                                                                    
     preliminary  stages of  exploration  ...  you may  have                                                                    
     some seismic  data; you typically  don't have  any well                                                                    
     data.  ...  So, in  that  case,  you  need a  lot  more                                                                    
     acreage.  When you get  to the unitization, you have to                                                                    
     have distinct  exploration prospects in  their outline.                                                                    
     We  won't  approve  the unit  acreage  beyond  what  we                                                                    
     believe ...  is the  potential reservoir, based  on the                                                                    
     seismic and  well data.   So you  can get  more acreage                                                                    
     ... than  the 500,000 if  it's within units,  but units                                                                    
     have very  specific work requirements and  they're very                                                                    
     defined  hydrocarbon   plays  or  known   producing  or                                                                    
     commercial fields.                                                                                                         
                                                                                                                                
Number 1160                                                                                                                     
                                                                                                                                
MR.  MYERS addressed  the second  part of  the bill,  which moves                                                               
royalty  audit  authority back  to  DNR  from the  Department  of                                                               
Revenue (DOR).   It's strictly for royalty matters,  he said, and                                                               
the purpose is efficiency.  He explained:                                                                                       
                                                                                                                                
     In  1980 the  law  was changed  to put  it  all in  the                                                                    
     Department  of  Revenue,  thinking  the  same  auditors                                                                    
     would  do  ...  the  audits and  there  was  efficiency                                                                    
     there.   But  then the  state entered  the settlements,                                                                    
     the Amerada  Hess case.   So each  oil and  gas company                                                                    
     has  a  separate  settlement  distinct  for  royalties,                                                                    
     different than taxes.  So,  in fact, audits aren't held                                                                    
     at  the same  time;  they're not  done in  conjunction.                                                                    
     Not  only that,  but the  settlements are  ... commonly                                                                    
     different on the  two sides.  So  the working knowledge                                                                    
     of that, really,  and the negotiating part  of that was                                                                    
     done within  the DNR, with  the Department of Law.   So                                                                    
     there isn't any, really, commonality in the audits.                                                                        
                                                                                                                                
     Currently, DNR  has ... four positions  for audits, but                                                                    
     those audits  are initiated and supervised  by DOR, and                                                                    
     they have two  supervising folks to do it.  ... What we                                                                    
     found is  that it's a  fairly inefficient way  to work.                                                                    
     Both  DOR and  DNR are  in concurrence  that it's  more                                                                    
     efficient to move  that function back to  DNR; it takes                                                                    
     a  statutory change.   With  that,  DOR would  transfer                                                                    
     about $237,000  to DNR.   We'd  pick up  two additional                                                                    
     audit positions.  So it's  just an efficiency bill.  We                                                                    
     know of no opposition to  it, and it's supported by the                                                                    
     administration from both departments.                                                                                      
                                                                                                                                
Number 1259                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG referred to page 4, Section [6],                                                                      
noting that it deletes language relating to payment for oil or                                                                  
gas royalty.   He  asked whether redundancy  is being  removed or                                                               
whether it takes out audits for royalty.                                                                                        
                                                                                                                                
MR. MYERS said this basically  just transfers authority to do the                                                               
audits from the DOR statutes and into the DNR statutes.                                                                         
                                                                                                                                
Number 1316                                                                                                                     
                                                                                                                                
REPRESENTATIVE CISSNA  sought clarification about the  history of                                                               
this  portion  and whether  this  audit  change will  affect  the                                                               
industry, for example.                                                                                                          
                                                                                                                                
MR.  MYERS  answered that  the  majority  of  the audit  work  is                                                               
accomplished by  DNR now.   Because the authority exists  in DOR,                                                               
however,  the head  auditor for  the  issue must  be within  DOR.                                                               
Noting that the  settlements are still evolving, he  said that as                                                               
they change or  go through "reopeners" and so  forth, [DNR] finds                                                               
that having  the commercial knowledge  in the  organization doing                                                               
the renegotiation  is much better.   He  said, "It makes  us more                                                               
effective in  the negotiations, and  I think it makes  us fairer,                                                               
more  knowledgeable."   He suggested  this is  a benefit  for the                                                               
industry  because   of  wanting  negotiations  to   be  based  on                                                               
knowledge when reopening a settlement.  He told members:                                                                        
                                                                                                                                
     The  settlements do  set the  framework.  ... You  just                                                                    
     renegotiate ... changes in  the marketplace, changes in                                                                    
     the   way   petroleum's   evaluated,  or   changes   in                                                                    
     transportation charges, basically.   And they go up and                                                                    
     down.    The companies  can  reopen  this, equal  [the]                                                                    
     playing  field. ...  So  those commercial  negotiations                                                                    
     are  very much  linked  to the  auditing, because  it's                                                                    
     through the auditing  that you find out  whether or not                                                                    
     you're getting out of line with the valuation.                                                                             
                                                                                                                                
     So we ... definitely  gain efficiency on the commercial                                                                    
     side to  get true  market value for  our oil,  based on                                                                    
     the settlement,  if that authority  ... is  within DNR.                                                                    
     Again,   we've   had   a  good,   cooperative   working                                                                    
     relationship  with   DOR;  they  recognize   that  it's                                                                    
     inefficient as  well, and  that, again,  envisioned was                                                                    
     that   tax   and   royalty   audits   would   be   done                                                                    
     simultaneously and you would  gain efficiency.  When we                                                                    
     reevaluate, given  the current budget  standards, we're                                                                    
     always reevaluating  ways to  make the  department more                                                                    
     efficient.  ...  We're  swamped with  the  increase  in                                                                    
     operations; this ... clearly makes us more efficient.                                                                      
                                                                                                                                
REPRESENTATIVE CISSNA  asked whether  there were  testifiers from                                                               
the industry.   She  pointed out  that the  proposed CS  had just                                                               
been provided to members the previous evening.                                                                                  
                                                                                                                                
CHAIR FATE called a recess at 8:35 a.m.                                                                                         
                                                                                                                                
Number 1500                                                                                                                     
                                                                                                                                
CHAIR FATE  called the  meeting back  to order  at 9:23  a.m. and                                                               
announced that  he was ready  to move the  bill.  He  related his                                                               
understanding that  Representative Cissna had discussed  the bill                                                               
in the meantime  and was satisfied with it.   He pointed out that                                                               
it has an indeterminate fiscal note.                                                                                            
                                                                                                                                
Number 1530                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GATTO  moved  to  report CSHB  246,  Version  23-                                                               
GH1135\D, Chenoweth,  5/13/03, out  of committee  with individual                                                               
recommendations and  the accompanying fiscal notes.   There being                                                               
no  objection,   CSHB  246(RES)  was  reported   from  the  House                                                               
Resources Standing Committee.                                                                                                   
                                                                                                                                
SB 56-SPORT FISHING FEES FOR YUKON RESIDENTS                                                                                  
                                                                                                                                
CHAIR FATE  announced that the  final order of business  would be                                                               
CS  FOR  SENATE BILL  NO.  56(FIN),  "An  Act relating  to  sport                                                               
fishing  license fees  and anadromous  king salmon  tag fees  for                                                               
residents  of  Yukon,  Canada; and  providing  for  an  effective                                                               
date."                                                                                                                          
                                                                                                                                
Number 1608                                                                                                                     
                                                                                                                                
SENATOR FRED DYSON, Alaska  State Legislature, sponsor, explained                                                               
that Yukon,  Canada, whose population  now is just  below 30,000,                                                               
is  struggling  economically  and  yet  has  worked  with  Alaska                                                               
enthusiastically to extend  the railroad, put in a  gas line, and                                                               
so  forth.   Its  government has  passed  legislation to  provide                                                               
reciprocity on fishing  licenses to allow Alaskans  to fish there                                                               
for  arctic char,  grayling, and  trout, for  example, and  works                                                               
closely [with the State of Alaska] on managing caribou herds.                                                                   
                                                                                                                                
SENATOR DYSON  noted that committee packets  include letters from                                                               
the State  Chamber of Commerce  and from Haines and  Skagway, the                                                               
two communities  that see the  most Yukoners taking  advantage of                                                               
saltwater  fishing  there;  both  communities see  this  bill  as                                                               
perhaps a bit of an economic boon.                                                                                              
                                                                                                                                
SENATOR  DYSON  informed  members  that  the  bill  allows  Yukon                                                               
residents to  pay resident Alaskan  rates for  licenses; however,                                                               
they won't be  classified as residents when it  comes to managing                                                               
the [fish].   Thus nothing  gives them  equal access in  times of                                                               
shortage.    Rather, this  allows  a  small privilege  of  buying                                                               
licenses at  resident rates.   He indicated Yukoners  he'd spoken                                                               
with  are  delighted with  this  concept.    He said  the  bill's                                                               
language is permissive, allowing  the commissioner to extend this                                                               
courtesy to Yukon residents if the commissioner so chooses.                                                                     
                                                                                                                                
Number 1833                                                                                                                     
                                                                                                                                
REPRESENTATIVE GATTO said  he is excited about this.   He pointed                                                               
out that when  floating down the Yukon River  starting in Canada,                                                               
a person must stop and look for  where the border is, since it is                                                               
seamless.     He  characterized  Yukon  residents   as  Alaskans'                                                               
brothers  and sisters,  and applauded  whoever came  up with  the                                                               
idea of the bill.                                                                                                               
                                                                                                                                
SENATOR   DYSON  suggested   applauding   former  Senator   Randy                                                               
Phillips.                                                                                                                       
                                                                                                                                
CHAIR FATE  agreed it's a good  idea, long overdue.   He surmised                                                               
that technicalities such as whether  the licenses are a different                                                               
color would be taken care of by the department.                                                                                 
                                                                                                                                
Number 1930                                                                                                                     
                                                                                                                                
REPRESENTATIVE WOLF said  he didn't have problems  with the bill,                                                               
but  expressed   concern  that  "we  have   nonresident  Alaskans                                                               
influencing management  of Alaska's  fish and  game at  this time                                                               
already, and they're U.S. citizens."   Agreeing that the Yukoners                                                               
are like  brothers and sisters,  he questioned why they  won't be                                                               
allowed   [to  participate   in   management],   while  he   said                                                               
"nonresident Alaskans" are allowed to.                                                                                          
                                                                                                                                
CHAIR  FATE  responded that  he  thinks  that is  conjecture  and                                                               
arguable.   Indicating he didn't  want to address that  issue, he                                                               
said this particular  legislation has to stand on  its own merit,                                                               
which he interpreted to be the  cost and authority to allow Yukon                                                               
residents to come to Alaska to fish [for a nonresident fee].                                                                    
                                                                                                                                
Number 2007                                                                                                                     
                                                                                                                                
REPRESENTATIVE MORGAN said he's delighted  to see the bill, since                                                               
he represents a district that  borders Canada and he knows people                                                               
in  Gakona, for  example, who  have dual  citizenship, and  knows                                                               
people in  Aniak who  have relatives  from Fort  Yukon.   He said                                                               
this has been a  long time coming.  "The more we  can open up our                                                               
arms  ...  and try  to  be  good  neighbors,  it's good  for  the                                                               
country, it's good for my village,  it's good for the urban area,                                                               
it's good for the world," he told members.                                                                                      
                                                                                                                                
Number 2098                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GATTO  moved  to   report  CSSB  56(FIN)  out  of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal notes.                                                                                                                   
                                                                                                                                
[Attention was brought  to a testifier from  the department, whom                                                               
Chair Fate invited to speak; the motion was left pending.]                                                                      
                                                                                                                                
Number 2129                                                                                                                     
                                                                                                                                
GORDY WILLIAMS, Legislative Liaison,  Office of the Commissioner,                                                               
Alaska  Department of  Fish &  Game  (ADF&G), noted  that as  the                                                               
sponsor  statement  says,  this   concept  had  been  before  the                                                               
legislature previously but didn't pass.   He agreed Canadians and                                                               
Yukoners are  good neighbors,  but suggested  it is  important to                                                               
put on the record some public  policy and fiscal issues.  Drawing                                                               
attention to the fiscal note  and accompanying explanation sheet,                                                               
he  offered his  understanding that  the sponsor  believes people                                                               
coming  over  [from  the  Yukon]  will  spend  money  in  Alaskan                                                               
communities.   However,  Mr. Williams  highlighted the  potential                                                               
loss  in state  revenue:    $46,000 to  the  fish  and game  fund                                                               
through the projections in the fiscal note.                                                                                     
                                                                                                                                
MR. WILLIAMS addressed public policy issues.  He told members:                                                                  
                                                                                                                                
     We think this could set a  bit of a precedent.  And the                                                                    
     Senator doesn't  necessarily agree,  and says  that ...                                                                    
     others haven't come  forth and said they  would give us                                                                    
     this reciprocity.   But we do share a  long border with                                                                    
     British Columbia.  And, for  example, the primary sport                                                                    
     fishing  locations  for  the Yukoners  are  Haines  and                                                                    
     Skagway, to  a large  degree, because they  have access                                                                    
     to  salt water  there  and to  salmon  and halibut  and                                                                    
     things that they  don't have elsewhere. ...  And if you                                                                    
     drive  out  of  either  Haines or  Skagway,  you're  in                                                                    
     British  Columbia for  the first  hour or  so that  you                                                                    
     drive out  of there.   And ... we're not  offering this                                                                    
     to  British Columbia  and, as  the  Senator will  point                                                                    
     out, they're not offering it to us either.                                                                                 
                                                                                                                                
     But it  ... is a  little bit of  a precedent.   What if                                                                    
     British  Columbia does  come to  us and  say that  they                                                                    
     would  like   to  do   a  similar   thing?     We  have                                                                    
     significantly  different sport  fishing regulations  in                                                                    
     Alaska and  bag limits,  versus what  they have  in the                                                                    
     Yukon  or what  they  have in  British  Columbia.   For                                                                    
     example,  I think  in the  Yukon  [they're] allowed  to                                                                    
     keep either  2 or 4  salmon a day.   And in  Alaska the                                                                    
     total amount  would be  27, but  that would  mean you'd                                                                    
     have to ...  catch the maximum of all  the species, but                                                                    
     certainly you  could be reasonably expected  to catch 6                                                                    
     to 8 salmon  a day when the cohos are  around, plus the                                                                    
     halibut and the bottomfish.                                                                                                
                                                                                                                                
MR. WILLIAMS  concluded by saying  this is  a nice thing  to give                                                               
people, but  the department  wants the committee  to be  aware of                                                               
the foregoing issues.                                                                                                           
                                                                                                                                
Number 2282                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GATTO  remarked  that  sales  generally  increase                                                               
whenever a discount is given.  He asked about the effects.                                                                      
                                                                                                                                
MR. WILLIAMS  referred to the  spreadsheet and said it's  hard to                                                               
predict.   Right  now, the  annual nonresident  license is  $100.                                                               
This shows  2,700 Yukon participants;  he surmised that  many are                                                               
the same people because it's cheaper  now to buy a series of one-                                                               
day or  multi-day licenses than  to buy the  annual one.   If the                                                               
annual license  dropped to $15,  however, people no  longer would                                                               
buy shorter-term licenses.                                                                                                      
                                                                                                                                
Number 2334                                                                                                                     
                                                                                                                                
CHAIR  FATE  asked  whether the  aggregate  revenues  from  sport                                                               
fishing licenses offset the costs,  no matter what length of time                                                               
the licenses are for.                                                                                                           
                                                                                                                                
MR. WILLIAMS  deferred to  Mr. Bentz, but  noted that  sport fish                                                               
license fees are a significant  component because no general fund                                                               
dollars  go into  sport fish.  He  asked whether  Chair Fate  was                                                               
talking about costs for management and running the fishery.                                                                     
                                                                                                                                
CHAIR  FATE  mentioned  the cost  of  licenses,  protection,  and                                                               
running the [Division of Sport Fish].                                                                                           
                                                                                                                                
Number 2408                                                                                                                     
                                                                                                                                
ROB  BENTZ,  Deputy  Director, Division  of  Sport  Fish,  Alaska                                                               
Department of Fish & Game, responded:                                                                                           
                                                                                                                                
     It does  offset the  costs.   We match  federal monies,                                                                    
     Dingell-Johnson,  Wallop-Breaux  federal   funds.    We                                                                    
     match those  with ...  the revenues  from the  fish and                                                                    
     game fund that  are license fees and  king salmon tags.                                                                    
     And  we  pay for,  with  a  combination of  funds,  our                                                                    
     entire sport  fish division budget. ...  There are more                                                                    
     things that we  could do, that we'd like to  do, but it                                                                    
     does fund our program.                                                                                                     
                                                                                                                                
CHAIR FATE  surmised, then,  that ADF&G  hasn't "peeled  off" the                                                               
amount  of  revenue  derived  from  state  sources  to  create  a                                                               
spreadsheet or record of that particular income from the state.                                                                 
                                                                                                                                
MR. BENTZ  said [the department]  knows what the  license revenue                                                               
is.   The amount  of federal  funding is  learned after  the fact                                                               
every year.                                                                                                                     
                                                                                                                                
MR.  WILLIAMS pointed  out that  king salmon  tags are  sold more                                                               
like duck stamps.  The department  knows how much money is raised                                                               
yearly  from  king  salmon  tags,  but  not  how  many  tags  are                                                               
generated by  Yukon residents  or other  people.   The department                                                               
knows all  the revenue raised  from sport fish licensing  and can                                                               
track that by state or person, except for the king salmon tags.                                                                 
                                                                                                                                
Number 2515                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WOLF asked  whether  the department  is taking  a                                                               
wild guess about the number of licenses.                                                                                        
                                                                                                                                
MR. WILLIAMS  indicated the department  had looked at  the period                                                               
when the  annual license fee  was raised  to $100 and  found that                                                               
participation from the Yukon remained pretty static.                                                                            
                                                                                                                                
MR. BENTZ,  in response to  a question from  Representative Wolf,                                                               
said the foregoing was in the mid-1990s, perhaps 1995 or 1996.                                                                  
                                                                                                                                
Number 2569                                                                                                                     
                                                                                                                                
REPRESENTATIVE HEINZE asked about the potential loss of $46,000.                                                                
                                                                                                                                
MR.  WILLIAMS  referred  to  the  spreadsheet,  noting  that  the                                                               
explanation   sheet  shows   the  different   categories.     The                                                               
spreadsheet  shows  2002  revenues.    The  2,700  [specifically,                                                               
2,741, the total  licenses sold to Yukon  Territory residents] is                                                               
hard  to  predict,  since  many  of  the  figures  above  on  the                                                               
spreadsheet  are from  people who  bought one-day,  three-day, or                                                               
seven-day licenses  because that's cheaper than  buying an annual                                                               
license.    Although it  isn't  2,700  discrete individuals,  the                                                               
department hasn't reviewed  how many are repeat  customers and so                                                               
forth.   He  indicated  2,700 was  used as  the  base number  and                                                               
carried through.                                                                                                                
                                                                                                                                
Number 2626                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HEINZE asked  how much  the $46,000  would affect                                                               
ADF&G's Division of Sport Fish.                                                                                                 
                                                                                                                                
MR. BENTZ said  one could multiply the $46,000 from  the fish and                                                               
game  fund by  three, for  about $120,000,  since the  department                                                               
matches 25  percent state  funds -  these fish  and game  funds -                                                               
with 75  percent federal  funds.   Therefore, closer  to $170,000                                                               
wouldn't be in the fish and  game fund, or there would be federal                                                               
funds  that the  state couldn't  match with  this $46,000.   Thus                                                               
about $170,000  would be lost  from the annual  operating budget,                                                               
which equates to several significant field projects.                                                                            
                                                                                                                                
Number 2697                                                                                                                     
                                                                                                                                
CHAIR FATE said  he's a bit bothered by the  fiscal note and some                                                               
of   the    spreadsheet   numbers   because    everything   seems                                                               
indeterminate and  based on king  salmon and king salmon  tags in                                                               
coming up  with the $46,000  figure.   He noted that  people fish                                                               
for  grayling  or  pike,  for  example, on  the  Yukon  River  or                                                               
Porcupine River.   He questioned  whether the department  had any                                                               
idea whether $46,000 was a firm figure.                                                                                         
                                                                                                                                
Number 2787                                                                                                                     
                                                                                                                                
MR. BENTZ  acknowledged that one hard-to-determine  number is how                                                               
many people  the 2,700  licenses represent,  as Mr.  Williams had                                                               
said, because some people make  multiple trips and buy short-term                                                               
licenses.   For people  coming to  sport fish  out of  Haines and                                                               
Skagway, however, Mr.  Bentz said he thinks it's  a good estimate                                                               
that half buy king salmon tags.  He explained:                                                                                  
                                                                                                                                
     We've got hatchery  fish returning to those  areas.  We                                                                    
     increased  the bag  limits.   In  some  cases, in  some                                                                    
     places,   the  annual   limit   that   is  imposed   on                                                                    
     nonresidents is  waived in these terminal  areas.  It's                                                                    
     a very  attractive fishery, not only  for people coming                                                                    
     down out  of Canada, but  for the local  residents [of]                                                                    
     Southeast Alaska.                                                                                                          
                                                                                                                                
MR. BENTZ said he's not as  familiar with the fishing patterns of                                                               
Yukon anglers in  the Interior, and surmised there  would be more                                                               
emphasis  on resident  species such  as grayling  or burbot,  for                                                               
example.   He  added,  "But definitely  in  Southeast, from  what                                                               
we've seen,  the people  that do come  down are  after anadromous                                                               
adult salmon and halibut and other bottomfish."                                                                                 
                                                                                                                                
Number 2868                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG referred to  the 2,700 figure for Yukon                                                               
residents and asked  whether there is another  number for British                                                               
Columbia, which has a much larger population.                                                                                   
                                                                                                                                
MR.  BENTZ said  he didn't  know that  number but  could have  it                                                               
generated by the department.                                                                                                    
                                                                                                                                
Number 2912                                                                                                                     
                                                                                                                                
REPRESENTATIVE HEINZE suggested if these  people spend $20 to $30                                                               
a  day,  that  totals  $54,000  to  $81,000.    Highlighting  the                                                               
estimated  $170,000 loss  to the  department,  she said  although                                                               
this  bill  is a  wonderful  idea,  she's  trying to  justify  it                                                               
fiscally.  She requested Senator Dyson's input.                                                                                 
                                                                                                                                
SENATOR DYSON replied:                                                                                                          
                                                                                                                                
     My guess  is, there will  be an increase in  the number                                                                    
     of fishermen.  My guess also,  to be honest, is the net                                                                    
     revenue  from  that  fishery  to  the  department  will                                                                    
     decrease  a  bit.   And  if  the  sales tax  passes,  I                                                                    
     suspect that the communities there  will more than make                                                                    
     up for  that, and we will  more than make up  for it in                                                                    
     state revenue.   And I'd be delighted to  work with the                                                                    
     department to  make sure that  ... we don't  lose those                                                                    
     "leverage federal funds" ... in  some way; I don't know                                                                    
     how to do  that.  But I've  got to be honest:   I think                                                                    
     that  these guys  are right,  and they're  not enemies;                                                                    
     they're just  putting forth  ... the  department's real                                                                    
     concern about the  money.  But I think  [there'll] be a                                                                    
     net  gain for  us,  as  a state,  on  it,  and I  think                                                                    
     [there'll]  be a  net revenue  loss of  an undetermined                                                                    
     amount to these folks.                                                                                                     
                                                                                                                                
TAPE 03-45, SIDE B                                                                                                            
Number 2991                                                                                                                     
                                                                                                                                
SENATOR DYSON  reiterated that Yukoners  are excited  about this,                                                               
and  spoke  about  the  gain in  public  relations,  which  isn't                                                               
quantifiable.   He  characterized this  as a  small gesture  that                                                               
will help  with a  gas pipeline and  extending the  railroad, for                                                               
example.   He noted that  Representative Gruenberg had  gone with                                                               
him to  the Yukon on his  last trip, and talked  about continuing                                                               
the bilateral partnership  between Yukon and Alaska.   He said it                                                               
is intangible and  cannot be put on a spreadsheet  or in a fiscal                                                               
note.   He also  mentioned the concept  of "circle  tourism" that                                                               
includes  both the  Yukon and  Alaska.   He suggested  the impact                                                               
from this bill will be small but measurable.                                                                                    
                                                                                                                                
CHAIR  FATE  offered  that  the   fiscal  note  is  negative  but                                                               
indeterminate.                                                                                                                  
                                                                                                                                
Number 2864                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WOLF  asked  how   much  is  generated  statewide                                                               
through tags and license fees annually in Alaska.                                                                               
                                                                                                                                
MR.  BENTZ said  roughly $11  million  to $12  million for  sport                                                               
fishing licenses and king salmon tags.                                                                                          
                                                                                                                                
REPRESENTATIVE WOLF  suggested $42,000 is  a small amount  in the                                                               
overall picture.                                                                                                                
                                                                                                                                
MR. BENTZ concurred.                                                                                                            
                                                                                                                                
Number 2819                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG  surmised that a  lot of funds  go into                                                               
management, maintenance,  and salaries.   He remarked, "A  lot of                                                               
times,  when it  comes down  to  what you  can do  with the  last                                                               
dollar  into  a  project,  that  could  be  in  any  one  of  our                                                               
communities."  He said he'll make  a speech on the House floor if                                                               
the bill  gets there about trying  to make up those  funds in the                                                               
short  term.   He then  asked whether  Dingell-Johnson funds  can                                                               
only be matched  with sport fishing funds or can  be matched with                                                               
general fund dollars.                                                                                                           
                                                                                                                                
MR. BENTZ  replied that  the only thing  federal funds  cannot be                                                               
matched  with  is  other federal  funds  or  federally  generated                                                               
money.  Therefore, it could be  from the general fund or the fish                                                               
and game fund.                                                                                                                  
                                                                                                                                
REPRESENTATIVE GUTTENBERG suggested the legislature should                                                                      
ensure there isn't a net loss to the department at the end of                                                                   
the budget process.                                                                                                             
                                                                                                                                
Number 2770                                                                                                                     
                                                                                                                                
CHAIR FATE asked whether there was any objection to the motion.                                                                 
There being no objection, CSSB 56(FIN) was reported from the                                                                    
House Resources Standing Committee.                                                                                             
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
The House Resources Standing Committee meeting was recessed                                                                     
until 1:00 p.m. or after the floor session.  [The meeting was                                                                   
never reconvened.]                                                                                                              

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