Legislature(2013 - 2014)BARNES 124

04/06/2013 01:00 PM RESOURCES


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 198 OIL AND GAS AND GAS ONLY LEASES TELECONFERENCED
Moved Out of Committee
+ HB 163 REGULATION OF SOLID FUEL BURNING DEVICES TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         April 6, 2013                                                                                          
                           1:06 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Eric Feige, Co-Chair                                                                                             
Representative Dan Saddler, Co-Chair                                                                                            
Representative Peggy Wilson, Vice Chair                                                                                         
Representative Mike Hawker                                                                                                      
Representative Craig Johnson                                                                                                    
Representative Kurt Olson                                                                                                       
Representative Paul Seaton                                                                                                      
Representative Geran Tarr                                                                                                       
Representative Chris Tuck                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                              
HOUSE BILL NO. 163                                                                                                              
"An Act prohibiting a person  from burning certain materials in a                                                               
solid fuel burning device; relating  to solid fuel burning device                                                               
emission standards;  and relating to prohibitions  on the burning                                                               
of solid fuels."                                                                                                                
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
HOUSE BILL NO. 198                                                                                                              
"An Act relating to  the primary period of an oil  and gas or gas                                                               
only lease and the extension of  a lease; relating to terms to be                                                               
included in an oil and gas  or gas only lease; relating to rental                                                               
for  an oil  and gas  or  gas only  lease; and  providing for  an                                                               
effective date."                                                                                                                
                                                                                                                                
     - MOVED HB 198 OUT OF COMMITTEE                                                                                            
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                              
BILL: HB 163                                                                                                                  
SHORT TITLE: REGULATION OF SOLID FUEL BURNING DEVICES                                                                           
SPONSOR(s): REPRESENTATIVE(s) T.WILSON                                                                                          
                                                                                                                                
03/11/13       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/11/13       (H)       CRA, RES                                                                                               
03/21/13       (H)       CRA AT 8:00 AM BARNES 124                                                                              
03/21/13       (H)       Moved Out of Committee                                                                                 
03/21/13       (H)       MINUTE(CRA)                                                                                            
03/22/13       (H)       CRA RPT 5DP                                                                                            
03/22/13       (H)       DP: FOSTER, REINBOLD, DRUMMOND, LEDOUX,                                                                
                         NAGEAK                                                                                                 
04/06/13       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
BILL: HB 198                                                                                                                  
SHORT TITLE: OIL AND GAS AND GAS ONLY LEASES                                                                                    
SPONSOR(s): LABOR & COMMERCE                                                                                                    
                                                                                                                                
04/02/13       (H)       READ THE FIRST TIME - REFERRALS                                                                        
04/02/13       (H)       RES                                                                                                    
04/06/13       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
REPRESENTATIVE T. WILSON                                                                                                        
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  As the prime sponsor, introduced HB 163.                                                                 
                                                                                                                                
KONRAD JACKSON, Staff                                                                                                           
Representative Kurt Olson                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Introduced HB 198, on behalf of the sponsor                                                              
of HB 198, the House Labor and Commerce Standing Committee,                                                                     
Representative Kurt Olson, Chair.                                                                                               
                                                                                                                                
WILLIAM C. BARRON, Director                                                                                                     
Division of Oil & Gas                                                                                                           
Department of Natural Resources (DNR)                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided a PowerPoint presentation to                                                                    
review the provisions of HB 198.                                                                                                
                                                                                                                                
LISA PARKER, Manager                                                                                                            
Government Relations                                                                                                            
Apache Alaska Corporation (Apache)                                                                                              
Soldotna, Alaska                                                                                                                
POSITION STATEMENT:  Testified in general support of HB 198.                                                                  
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:06:16 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  ERIC   FEIGE  called   the  House   Resources  Standing                                                             
Committee meeting to order at  1:06 p.m.  Representatives Seaton,                                                               
Hawker, Tarr, P.  Wilson, Olson, Saddler, and  Feige were present                                                               
at the call  to order.  Representatives Johnson  and Tuck arrived                                                               
as the meeting was in progress.                                                                                                 
                                                                                                                                
        HB 163-REGULATION OF SOLID FUEL BURNING DEVICES                                                                     
                                                                                                                                
1:06:40 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE announced  that the first order  of business would                                                               
be HOUSE BILL NO. 163, "An  Act prohibiting a person from burning                                                               
certain materials  in a  solid fuel  burning device;  relating to                                                               
solid  fuel burning  device emission  standards; and  relating to                                                               
prohibitions on the burning of solid fuels."                                                                                    
                                                                                                                                
1:06:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE T.  WILSON, Alaska State  Legislature, paraphrased                                                               
from  the  following   sponsor  statement  [original  punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     This bill  would establish a new  emission standard for                                                                    
     solid fuel  burning devices  within the  EPA designated                                                                    
     2.5 nonattainment  areas by allowing only  the cleanest                                                                    
     burning  devices to  be sold  at  local retail  stores.                                                                    
     Those who have a  solid fuel device currently installed                                                                    
     are grandfathered  under the new emission  standard and                                                                    
     would not need to convert their device.                                                                                    
                                                                                                                                
     Currently,  a  PM  2.5   nonattainment  area  has  been                                                                    
     designated by the  U.S. Environmental Protection Agency                                                                    
     within the  Fairbanks North Star  Borough.   During the                                                                    
     winter months,  air quality status can  reach unhealthy                                                                    
     levels for  many of  the people  who reside  within the                                                                    
     nonattainment  area.   This  was  especially true  this                                                                    
     last   winter  when   the  average   temperate  between                                                                    
     November and December was minus 40 degrees.                                                                                
                                                                                                                                
     This  bill ensures  the  most  efficient EPA  certified                                                                    
     appliances  are   installed  as   homeowners  naturally                                                                    
     upgrade their units, saving  Alaskans money by reducing                                                                    
     the  cost of  space heat.  Additionally, by  installing                                                                    
     the best technology, air quality  at a neighborhood and                                                                    
     regional level  will also improve.   This  is important                                                                    
     for  the  overall health  of  the  communities and  for                                                                    
     achieving federal attainment with EPA.                                                                                     
                                                                                                                                
     Finally,  HB 163  guarantees an  individual's right  to                                                                    
     use  a solid  fuel  burning device  in accordance  with                                                                    
     their   budget  and   local  and   state   law.     The                                                                    
     consequences  of not  reaching  EPA  PM 2.5  attainment                                                                    
     status stretch  beyond health concerns.   If attainment                                                                    
     is  not reached  by 2014,  the EPA  could sanction  the                                                                    
     state of  Alaska by  withholding Federal  highway funds                                                                    
     within the  non-attainment area, which ranges  from the                                                                    
     City of  Fairbanks to  the City of  North Pole  and the                                                                    
     outlying areas.   It is not the  entire Fairbanks North                                                                    
     Star Borough but is the  populated area.  It also would                                                                    
     include  Ft. Wainwright.   This  would prevent  many of                                                                    
     Alaska's roads  and transportation  infrastructure from                                                                    
     being  constructed  or  upgraded.     This  bill  is  a                                                                    
     proactive  bill and  will hopefully  prevent additional                                                                    
     communities from becoming a PM 2.5 nonattainment area.                                                                     
                                                                                                                                
1:09:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  T.  WILSON  indicated she  originally  considered                                                               
making the  bill apply  statewide, however,  since then  she made                                                               
several changes to  the bill.  Perhaps if the  community had been                                                               
more proactive it might not be  in a non-attainment area now, she                                                               
said.   The EPA certified wood  stoves are rated up  to 7.5 grams                                                               
per  hour.  Due to  temperature  inversion  issues, the  EPA  and                                                               
Fairbanks North  Star Borough (FNSB)  do not think  the community                                                               
can meet  attainment without  specifying cleaner  burning stoves,                                                               
such as ones that rated at 2.5 grams per hour.                                                                                  
                                                                                                                                
REPRESENTATIVE  T. WILSON  explained that  the interpretation  of                                                               
the  EPA's  standards related  to  British  Thermal Units  (BTUs)                                                               
indicated none  of the  wood stoves  would have  qualified, which                                                               
was  not the  intent of  the bill.   Additionally,  the DEC  will                                                               
address by  regulation any  stoves over  200,000 BTUs,  which are                                                               
more the  commercial size.  She  said the intent of  this bill is                                                               
to provide relief  for her community.  In fact,  she hoped that a                                                               
natural  gas project  will move  forward,  which will  ultimately                                                               
solve the air quality problem.                                                                                                  
                                                                                                                                
1:10:44 PM                                                                                                                    
                                                                                                                                
CO-CHAIR   SADDLER  moved   to  adopt   the  proposed   committee                                                               
substitute (CS) for HB 163,  Version 28-LS0248\R, Nauman, 4/4/13,                                                               
as the  working document.   There being  no objection,  Version R                                                               
was adopted as the working document.                                                                                            
                                                                                                                                
CO-CHAIR  SADDLER asked  how much  of  the non-attainment  issues                                                               
were the  result of  tar emissions versus  emissions from  a wood                                                               
stove or other stove.                                                                                                           
                                                                                                                                
REPRESENTATIVE T.  WILSON indicated that  over 50 percent  of the                                                               
air quality issue  is attributed to burning solid  fuel from wood                                                               
stoves.                                                                                                                         
                                                                                                                                
1:11:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  asked whether  the sponsor  is comfortable                                                               
with the standards on [page 2, lines 10-31, and page 3, lines 1-                                                                
2], subsection  (c)].   He further asked  whether the  sponsor is                                                               
comfortable  that the  department  will have  time  to adopt  the                                                               
regulations.                                                                                                                    
                                                                                                                                
REPRESENTATIVE T. WILSON  answered yes; that at  this point these                                                               
standards will  work the best  for Fairbanks.  She  remarked that                                                               
the  coal burners  within the  FNSB are  exempt.   She emphasized                                                               
that  the  community is  not  seeking  a  whole new  test  model.                                                               
Instead,  she  would  like  regulations  to  be  clearly  set  so                                                               
companies bringing in  any device not currently  certified by the                                                               
EPA will have  the ability to have the device  tested, submit the                                                               
results, and receive approval or denial.                                                                                        
                                                                                                                                
1:12:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER remarked  that she has hit on the  key.  He                                                               
offered  his belief  the  one  of the  areas  that  will be  most                                                               
impacted by  the bill is  the Fairbanks area.   He said,  "If you                                                               
are comfortable with it, I'm comfortable with it."                                                                              
                                                                                                                                
REPRESENTATIVE  T.  WILSON   clarified  that  another  community,                                                               
Juneau, "is  on the edge."   She stated that Juneau  represents a                                                               
smaller  area and  while  it  does not  fall  in  the EPA's  non-                                                               
attainment area for air quality, it  does fall in the next stage.                                                               
She hoped  one outcome  will be  that companies  will manufacture                                                               
cleaner-burning stoves.                                                                                                         
                                                                                                                                
REPRESENTATIVE HAWKER  said he appreciated her  bringing the bill                                                               
forward.                                                                                                                        
                                                                                                                                
1:13:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON understood the sponsor  will be working                                                               
with the  DEC in the next  several months and if  necessary would                                                               
bring additional changes forward next year.                                                                                     
                                                                                                                                
REPRESENTATIVE  T. WILSON  agreed.   She  said that  she will  be                                                               
working with the  community, the DEC, and the dealers  on the air                                                               
quality issue.  She stated  that her overreaching goal and intent                                                               
is not to do harm.                                                                                                              
                                                                                                                                
1:14:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TARR  suggested the  sponsor could also  work with                                                               
the Department  of Health  and Social  Services.   She understood                                                               
that high  rates of  asthma currently exist  in Fairbanks  due to                                                               
particulate matter.  She expressed  concern that burning fuel and                                                               
other materials such  as plastics which emit toxic  fumes is also                                                               
related to asthma and other health conditions.                                                                                  
                                                                                                                                
REPRESENTATIVE T. WILSON  answered that the list of  items not to                                                               
burn is  already addressed in  regulation.  She  highlighted that                                                               
the  asthma  problem in  Fairbanks  is  more closely  related  to                                                               
burning of "greener"  wood, which doesn't combust  to the fullest                                                               
extent.     In   fact,  the   temperature  inversion   holds  all                                                               
particulates  at  the ground  level.    Further, at  extreme  low                                                               
temperatures the problem has been  exacerbated [since people burn                                                               
more wood].   She  anticipated one  outcome of  the bill  is that                                                               
people automatically will look for cleaner burning stoves.                                                                      
                                                                                                                                
1:16:11 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER   asked  whether  stoves  already   in  stores'                                                               
inventory that do not meet the  standards will pose a problem for                                                               
retailers.                                                                                                                      
                                                                                                                                
REPRESENTATIVE T.  WILSON answered that  issue will be  worked on                                                               
with  DEC  [as part  of  the  interim work  on  the  bill].   She                                                               
envisioned that a  list will be sent to DEC  so the department is                                                               
informed  on  store  inventories;  however,  she  understood  the                                                               
stoves  would  be sold  outside  the  non-attainment area.    She                                                               
acknowledged  that  one  of  her   goals  is  to  hold  companies                                                               
harmless.                                                                                                                       
                                                                                                                                
1:16:53 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER   asked  how   much  more  expensive   a  high-                                                               
performance,  high-efficiency low-particulate  emitting stove  is                                                               
as compared to one with a lesser emission standard.                                                                             
                                                                                                                                
REPRESENTATIVE  T. WILSON  responded  that the  cost ranges  from                                                               
$100 to  $200 or  more for high-efficiency  stoves, which  is not                                                               
related  to emissions  as much  as the  stoves' appearance  since                                                               
features such as glass or curlicues  cost more.  In fact, most of                                                               
the  high-efficiency  stoves contain  a  catalyst,  which is  the                                                               
mechanism that makes the stoves cleaner burning, she said.                                                                      
                                                                                                                                
1:17:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  referred  to  background  information  in                                                               
members'  packets  entitled, "EPA  Certified  Wood  Stoves."   He                                                               
understood  the   EPA  maintains   a  list  of   1988  accredited                                                               
laboratory tested  stoves.   He asked  whether the  1988 standard                                                               
has  not been  replaced  by a  new standard.    He further  asked                                                               
whether the  2.5 grams  per hour  for each  200,000 BTUs  of heat                                                               
output represents a new "Alaska-only  standard" or if the EPA has                                                               
another designation.                                                                                                            
                                                                                                                                
REPRESENTATIVE  T. WILSON  responded  that 1988  is  the year  in                                                               
which certification of all stoves  began, which ranges from .4 to                                                               
7.5 grams per  hour.  A few years ago  Washington [state] had the                                                               
same  issue  and  instead  of   banning  stoves,  their  agencies                                                               
approached the  issue by lowering  the amount of emissions.   She                                                               
had hoped the  EPA would impose the  emissions standards, similar                                                               
to  how  car  emissions  are regulated,  by  requiring  catalytic                                                               
convertors to  reduce emissions.   However, she  did not  want to                                                               
wait for  the EPA  to act, so  the aforementioned  standard would                                                               
only apply to  the non-attainment area in  Alaska.  Additionally,                                                               
as sponsor, she  will consider adding a sunset  provision so once                                                               
attainment is reached the statutes would no longer apply.                                                                       
                                                                                                                                
1:19:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SEATON   understood   the   EPA   performs   the                                                               
certification  so the  state will  not  need to  do the  testing;                                                               
instead, it will  be done by the EPA laboratory.   He wondered if                                                               
stickers or  some type of  plaque would  be applied to  stoves to                                                               
indicate the particulate emissions.                                                                                             
                                                                                                                                
REPRESENTATIVE T. WILSON responded that  this would apply to wood                                                               
stoves and  qualified solid fuel  burners, but coal  burners will                                                               
be exempt.  The DEC would  set up the equivalent standard related                                                               
to the EPA,  by regulation, for testing  by certain laboratories.                                                               
She  stated that  the  FNSB  currently will  test  any units  not                                                               
currently certified or  not qualified by the EPA,  at the owner's                                                               
expense.                                                                                                                        
                                                                                                                                
1:20:45 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE understood  that catalytic  converters help  burn                                                               
the contents  more completely  and cuts  down on  the particulate                                                               
emissions.   He asked  whether it is  possible to  retrofit older                                                               
stoves with some type of in-stack catalytic converter.                                                                          
                                                                                                                                
REPRESENTATIVE T.  WILSON stated  that some testing  is currently                                                               
happening,  especially  for outdoor  boilers.    She stated,  for                                                               
example, that the  Tok School has a [catalytic  converter] in one                                                               
of its  bigger units.  She  highlighted that while it  works best                                                               
job  when the  stove  is burning  hot, it's  a  little harder  to                                                               
control  with wood  stoves as  opposed to  furnaces.   Typically,                                                               
people get the stove started then  turn it down while they are at                                                               
work.  The catalytic converter  will make the stoves burn cleaner                                                               
and  longer.   She pointed  out  that most  of the  non-catalytic                                                               
stoves emit 4.5 grams of particulates or higher.                                                                                
                                                                                                                                
REPRESENTATIVE T.  WILSON compared  the process as  being similar                                                               
to the  Inspection and Maintenance (IM)  program some communities                                                               
had  in   place.     What  ultimately   happened  was   that  car                                                               
manufacturers were forced  to make their products  cleaner and as                                                               
older  cars  wore out  and  were  replaced  by newer  ones  [with                                                               
catalytic   converters],  the   carbon  dioxide   emission  issue                                                               
subsided.   She  offered her  belief  that it  may take  combined                                                               
efforts from  states to  request EPA  offer testing.   Currently,                                                               
the EPA  tests units  in a  big warehouse  with certain  types of                                                               
wood, but not under cold  temperatures.  She expressed doubt that                                                               
the  actual performance  outcome would  be the  same in  sub-zero                                                               
temperatures.                                                                                                                   
                                                                                                                                
1:23:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TARR  asked   whether  the  committee  previously                                                               
considered a  bill to provide  loans for wood-burning  stoves and                                                               
if that aspect will also help  private homeowners to meet the new                                                               
standards.                                                                                                                      
                                                                                                                                
REPRESENTATIVE T.  WILSON asked whether  she was referring  to HB                                                               
35, which  would allow people to  change out any type  of furnace                                                               
to a  more efficient  type.   She explained that  under HB  35, a                                                               
person could  not exchange the  home heating system for  a manual                                                               
wood stove, but a person could put in an automated system.                                                                      
                                                                                                                                
1:24:07 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER asked  whether this bill would  bar other second                                                               
class  cities  and  municipalities   from  imposing  either  more                                                               
rigorous  or more  lenient standards.   He  was uncertain  of the                                                               
impact the  bill will have  on emissions.   He referred  to [DCED                                                               
Fiscal  note 1  dated 3/22/13]  which read,  "It would  limit all                                                               
municipalities  from  adopting  a particulate  air  contamination                                                               
emission standard for  solid fuel burning devices  other than the                                                               
standard adopted by regulation by the state."                                                                                   
                                                                                                                                
REPRESENTATIVE T.  WILSON stated the  fiscal note he  referred to                                                               
is a  fiscal note which refers  to the original bill  and will be                                                               
updated  to  reflect  the proposed  committee  substitute.    She                                                               
anticipated the updated fiscal note  would be a zero fiscal note.                                                               
She  pointed  out  the  original  fiscal  note  was  based  on  a                                                               
statewide impact and required the DCED to perform the testing.                                                                  
                                                                                                                                
1:24:59 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER asked whether this  bill will assist in delaying                                                               
the EPA's implementation of any  sanctions or would result in any                                                               
loss of highway funds.                                                                                                          
                                                                                                                                
REPRESENTATIVE T. WILSON  answered that the state  is required to                                                               
have a  state implementation  plan and this  will fit  within the                                                               
plan.   The more ways in  which the state can  demonstrate to the                                                               
EPA that the  state is attempting to meet the  standards can help                                                               
the  state receive  an  extension  to meet  the  standards.   She                                                               
offered  her  belief  that  the  EPA  realizes  it  will  take  a                                                               
different type of  fuel, primarily gas, before the  FNSB can meet                                                               
the air  quality standards.   However,  as long  as the  state is                                                               
making  progress in  lowering  the emissions,  the  EPA has  been                                                               
willing  to work  with the  state.   Additionally, the  EPA's air                                                               
quality  standards  will  impact  the military  bases  since  the                                                               
military  must take  into account  the  non-attainment area  when                                                               
considering transporting troops into the Fairbanks area.                                                                        
                                                                                                                                
1:26:20 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE indicated  Representative T.  Wilson has  another                                                               
hearing to attend.  He asked to hold HB 163 over.                                                                               
                                                                                                                                
1:26:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON referred to page  3, line 10, to subsection                                                               
(e), which  read, "A state or  local authority may not  adopt the                                                               
particulate  air containment  emission  standard  for solid  fuel                                                               
burning devices  other than the  standard adopted  by regulations                                                               
under  (c) of  this section."   He  asked whether  this statewide                                                               
requirement  is  necessary in  this  bill  since the  program  is                                                               
limited to the non-attainment area.                                                                                             
                                                                                                                                
REPRESENTATIVE  T. WILSON  understood that  is already  state law                                                               
and is not something added.                                                                                                     
                                                                                                                                
[HB 163 was held over.]                                                                                                         
                                                                                                                                
                                                                                                                                
             HB 198-OIL AND GAS AND GAS ONLY LEASES                                                                         
                                                                                                                                
1:27:28 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  announced that the  next order of  business would                                                               
be HOUSE BILL NO. 198, "An  Act relating to the primary period of                                                               
an oil and  gas or gas only  lease and the extension  of a lease;                                                               
relating to terms  to be included in  an oil and gas  or gas only                                                               
lease; relating to  rental for an oil and gas  or gas only lease;                                                               
and providing for an effective date."                                                                                           
                                                                                                                                
1:27:49 PM                                                                                                                    
                                                                                                                                
KONRAD JACKSON,  Staff, Representative  Kurt Olson,  Alaska State                                                               
Legislature,  on   behalf  of  the   House  Labor   and  Commerce                                                               
Committee, Representative  Kurt Olson, Chair, stated  that HB 198                                                               
relates to  the primary  period of  an oil and  gas lease  or gas                                                               
only  lease.   Currently  under  AS 38.05.180  (m),  oil and  gas                                                               
leases may  be extended automatically (1)  if and for so  long as                                                               
oil  or gas  is produced  in  paying quantities  from the  leased                                                               
area, or (2) if the lease is  committed to a unit approved by the                                                               
Commissioner of the Department of Natural Resources (DNR).                                                                      
                                                                                                                                
MR. JACKSON  said bill  would amend AS  38.05.180 (m)  to provide                                                               
the Commissioner of the Department  of Natural Resources (DNR) or                                                               
his/her  designee  the  discretion  to  grant  a  onetime   lease                                                               
extension to the  primary period of the oil and  gas lease or gas                                                               
only lease.   The total  time of the  extension is not  to exceed                                                               
ten (10) years.                                                                                                                 
                                                                                                                                
1:29:04 PM                                                                                                                    
                                                                                                                                
MR. JACKSON stated  that Section 2 of HB 198  would allow the DNR                                                               
to establish  conditions for the lease  extension, including that                                                               
if a lease extension is granted,  the annual rental rate per acre                                                               
shall increase up  to $250 per acre per year  for the final three                                                               
years of the term.   However, the commissioner has the discretion                                                               
to reduce this  increased rental rate if it is  determined that a                                                               
lessee  has  exercised  reasonable  diligence  in  exploring  and                                                               
developing the lease during the primary term.                                                                                   
                                                                                                                                
MR.  JACKSON   indicated  that  Section  4   provides  transition                                                               
language  for  leases  which  will   be  expiring  close  to  the                                                               
effective date of the bill.   The intent is to ensure all lessees                                                               
have an opportunity to apply for the extension.                                                                                 
                                                                                                                                
MR. JACKSON characterized the bill  as a "win-win" for the state,                                                               
for  explorers and  producers, who  are  close to  being able  to                                                               
begin production or exploration, but need a little more time.                                                                   
                                                                                                                                
1:30:48 PM                                                                                                                    
                                                                                                                                
WILLIAM C.  BARRON, Director, Division  of Oil &  Gas, Department                                                               
of  Natural Resources  (DOR), began  his presentation  by stating                                                               
that currently no one has  the authority to extend short-term oil                                                               
and gas leases beyond the  primary lease terms.  He characterized                                                               
this as a real gap in terms of DNR's policy.                                                                                    
                                                                                                                                
1:31:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON asked whether  there is any  reason why                                                               
leases cannot  be extended  or if  this represents  an accidental                                                               
loophole.                                                                                                                       
                                                                                                                                
MR. BARRON responded  that he believed it was an  oversight.  The                                                               
division has the statutory authority to  lease up to 10 years but                                                               
no  less  than  5  years.    Thus  over  time  the  division  has                                                               
considered 5, 7, or 10-year terms  and conditions in an effort to                                                               
motivate  exploration [slide  2].   The downside  to the  plan is                                                               
that  it  takes  time  to mobilize,  shoot,  interpret,  and  re-                                                               
interpret the seismic information, plus  get a drilling rig under                                                               
contract  can take  five years.   He  suggested that  a five-year                                                               
lease term  on the East  side of  Cook Inlet, with  existing road                                                               
infrastructure  and longer  drilling seasons  might tend  to work                                                               
better.                                                                                                                         
                                                                                                                                
1:33:06 PM                                                                                                                    
                                                                                                                                
MR.  BARRON  said  it  was  recognized  that  some  lessees  were                                                               
diligently  conducting  work but  running  out  of time.    These                                                               
lessees brought to  the division unit applications  that were not                                                               
fully fleshed  out.  Thus  it was  necessary for the  division to                                                               
process units rather than allow  companies to perform exploration                                                               
drilling  to  prove  the  hydrocarbon  rather  than  work  off  a                                                               
potential  hydrocarbon.    He  described  this  as  being  a  key                                                               
difference.                                                                                                                     
                                                                                                                                
MR.  BARRON  emphasized that  this  is  not about  "warehousing."                                                               
Instead, this  is about  companies who  have been  diligent about                                                               
doing their  work.   For example,  some companies  with five-year                                                               
leases have  been working  for four years  or longer  and working                                                               
their  leases hard.    This bill  represents  an opportunity  for                                                               
these  companies to  pursue  one  or two  more  years [slide  2].                                                               
However,  this bill  does not  issue an  automatic extension  and                                                               
interested companies  would have  to petition the  department and                                                               
provide details  on the work  done, money spent  the discoveries,                                                               
and current plans.  At that juncture,  it would become a bit of a                                                               
negotiation  since  the lease  is  a  contract.   Secondly,  this                                                               
statute would also allow the  division to renegotiate contractual                                                               
terms,  which  is essentially  an  option.    Options come  at  a                                                               
premium, so  this will the  first time the division  can actually                                                               
hold  discussions  and dictate  the  necessity  for the  drilling                                                               
program,  with hard  and  fast work  commitments  made under  the                                                               
contract extension.                                                                                                             
                                                                                                                                
1:35:22 PM                                                                                                                    
                                                                                                                                
MR. BARRON referred to the $250  per acre rental rate [in Section                                                               
2] that  Mr. Jackson previously  mentioned, which  represents the                                                               
lease terms  issued within the last  several years.  He  said the                                                               
industry  has indicated  that seven-year  leases are  good, since                                                               
most  of the  work could  be  done within  seven years;  however,                                                               
three extra years would be  better.  Currently, the fees increase                                                               
for leases  in which work  has not yet been  done.  He  said that                                                               
the industry  has been really  good at making  business decisions                                                               
so the division will give  them an opportunity to make additional                                                               
business  decisions.    Additionally, the  commissioner  has  the                                                               
ability to reduce the rental rate if work has been done.                                                                        
                                                                                                                                
MR. BARRON  said he  was unsure whether  the division  would ever                                                               
use the  $250 rental figure.   For example,  if a producer  had a                                                               
five-year lease and the division  granted the lessee a full five-                                                               
year   extension,  the   division   would   be  building   yearly                                                               
thresholds.   In  the event  the lessee  did not  meet the  first                                                               
annual requirement,  perhaps the lease would  expire.  Therefore,                                                               
even though  the $250 per acre  rental rate is an  option, he did                                                               
not anticipate the division would routinely use it.                                                                             
                                                                                                                                
MR. BARRON pointed  out the real key will be  the ability to have                                                               
work commitments.   Under the bill, this would be  the first time                                                               
the  division  could  "lean  into the  companies"  and  get  work                                                               
programs established.                                                                                                           
                                                                                                                                
1:37:03 PM                                                                                                                    
                                                                                                                                
MR.  BARRON  offered  to  quantify  the  problem  the  bill  will                                                               
address.   He  referred  to slide  3,  entitled "Northern  Alaska                                                               
Lease  Distribution"  which  depicts  a collection  of  data,  by                                                               
column, for the  number of companies and leases  in the Foothills                                                               
area and North  Slope area that will expire in  the next 2 years,                                                               
2-5 years,  and over 5  years.  He characterized  it as a  mix of                                                               
companies, which changes over time.                                                                                             
                                                                                                                                
MR.  BARRON stated  that Repsol  [E&P  USA, Inc.]  (Repsol) is  a                                                               
"big" player,  and AVCG, LLC  is right  behind them.   Repsol was                                                               
not at the  original lease sale, but acquired  the leases through                                                               
a business arrangement with Armstrong Oil  and Gas, Inc.  This is                                                               
the  type  of  company  that  became  very  aggressive  with  its                                                               
drilling activities and  mobilization.  He indicated  this is the                                                               
type of company  the division would want to  encourage and reward                                                               
with this type of extension opportunity.                                                                                        
                                                                                                                                
1:38:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER acknowledged  Repsol as  a great  example.                                                               
He recalled  previous testimony that  the division seeks  to have                                                               
latitude to extend leases for  someone who had been diligent over                                                               
the primary term.   He wanted to make certain  that the intent is                                                               
for  this bill  to cover  someone who  held a  successor interest                                                               
since these lessees did not have  the ability to be diligent over                                                               
the primary term.   Thus the successor interest would  need to be                                                               
willing to  adhere to additional  requirements as a  condition of                                                               
the extension.                                                                                                                  
                                                                                                                                
MR. BARRON  responded that is  clearly the intent.   He explained                                                               
that when  someone buys  into an  oil and  gas lease,  they enter                                                               
into a  contract with  the state and  effectively "step  into the                                                               
shoes" of  the other company.   If they stepped in  with only one                                                               
year of the  lease remaining, it would be very  difficult to make                                                               
substantial  activities.   Granted,  that  would  be a  difficult                                                               
call, since  the company is aware  at the outset it  only has one                                                               
year.  Thus,  the company must "really get after  the program" or                                                               
risk "a  very blunt no."   Naturally, companies will be  aware of                                                               
the short  time remaining so  if the  companies are not  ready to                                                               
proceed, it  would likely  be their preference  to let  the lease                                                               
expire and  pick it  up in  the next lease  sale.   Again, Repsol                                                               
came  in  with  a  short   window  and  worked  aggressively  and                                                               
diligently  with  the  state  to  get  its  work  program  moving                                                               
forward.   He  reiterated that  someone stepping  into the  lease                                                               
would  be treated  the same  as  someone who  originally had  the                                                               
lease.                                                                                                                          
                                                                                                                                
1:40:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P. WILSON asked for  clarification on the process.                                                               
She asked  what happens when a  five-year oil and gas  lease runs                                                               
out.   She  further asked  whether  an unsuccessful  oil and  gas                                                               
lease will go back to the  state or if the company is successful,                                                               
if oil production is the next step.                                                                                             
                                                                                                                                
MR. BARRON  first explained  what happens if  a company  fails to                                                               
finish working  its lease  within the lease  timeframe.   He said                                                               
that the company  can relinquish the property,  which is returned                                                               
to  the state  for  the next  lease  sale.   The  company has  an                                                               
opportunity  to pick  up the  lease again  or a  competitor could                                                               
lease it.   He  said the  division recognizes  this as  a problem                                                               
since  substantial work  may  have been  done  under the  initial                                                               
lease  and  the  original  company has  the  best  knowledge  and                                                               
understanding of  the geology,  as well as  having the  work plan                                                               
laid out.   Thus it's in  the state's best interest  to give them                                                               
another  year  or  two  to  complete the  work  that  is  already                                                               
started.                                                                                                                        
                                                                                                                                
1:42:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.   WILSON  asked  who  owns   the  geographical                                                               
information.                                                                                                                    
                                                                                                                                
MR. BARRON answered that information is  held by the company.  He                                                               
said  that  seismic  information  is typically  released  to  the                                                               
state, but it is held in confidence.                                                                                            
                                                                                                                                
CO-CHAIR FEIGE remarked one exception  is if the company acquired                                                               
the geographical information under exploration credits.                                                                         
                                                                                                                                
MR. BARRON  answered that is correct.   In the event  the company                                                               
acquired  the  information  under   the  exploration  tax  credit                                                               
regime, the state would receive the information.                                                                                
                                                                                                                                
1:42:42 PM                                                                                                                    
                                                                                                                                
MR.  BARRON next  turned to  the success  path.   In the  event a                                                               
company was  successful and  was able  to perform  due diligence,                                                               
and  drill wells,  and was  successful,  would apply  for a  unit                                                               
application from  the division.   The  company would  unitize the                                                               
area it  felt was productive  and all the leases  associated with                                                               
the unit  will be held so  long as the  unit is in state.   "They                                                               
get to keep the land after that," he said.                                                                                      
                                                                                                                                
CO-CHAIR FEIGE  understood that is the  case so long as  the unit                                                               
is producing.                                                                                                                   
                                                                                                                                
MR. BARRON answered that is correct.                                                                                            
                                                                                                                                
1:43:15 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  asked whether the  extra rental rate  per acre,                                                               
increasing from  $25 to  $250, which  could be  pretty expensive,                                                               
might  jeopardize  the  economics  such  that  it  might  not  be                                                               
affordable to continue even if the company desired to do so.                                                                    
                                                                                                                                
MR.  BARRON  allowed  that  would   be  a  possibility,  but  the                                                               
division's intent is to have the  ability to increase rents as an                                                               
option; however,  it doesn't necessarily mean  the division would                                                               
impose the additional rental fees.                                                                                              
                                                                                                                                
CO-CHAIR SADDLER asked whether the  division could charge fees up                                                               
to the $250 limit.                                                                                                              
                                                                                                                                
MR.  BARRON   answered  yes,   that  process   is  part   of  the                                                               
negotiations with  the lessee.   Additionally, one of  the pieces                                                               
is  also performance  bonding.   For  example,  the division  may                                                               
require a $10 million  bond if the cost to drill  the well is $10                                                               
million.   If the company  doesn't perform, the state  would keep                                                               
the bond, but in the event  the company performs, the state would                                                               
release the bond.                                                                                                               
                                                                                                                                
MR. BARRON clarified that this  represents the division's attempt                                                               
to have  companies obtain some "skin  in the game" and  commit to                                                               
the state work  activities that the lessee intends  to perform on                                                               
state land in a timely manner.                                                                                                  
                                                                                                                                
1:44:27 PM                                                                                                                    
                                                                                                                                
MR. BARRON, again, said that while  the $250 per acre rental rate                                                               
may seem  extreme, it would likely  be the last option  the state                                                               
would  use.    In  fact,  if  the  company  has  been  performing                                                               
substantial work,  the $250 increase  would not be issued  by the                                                               
commissioner.    He  emphasized  that the  entire  point  of  the                                                               
additional fee  is if the work  isn't being done, that  the state                                                               
is placing a value on the land.                                                                                                 
                                                                                                                                
CO-CHAIR FEIGE remarked that it is a "nudge."                                                                                   
                                                                                                                                
MR. BARRON  said that  is exactly  right.   While in  theory, the                                                               
rental  fee  increase  provision  is in  the  bill,  it's  highly                                                               
unlikely that the state would get to that specific point.                                                                       
                                                                                                                                
1:45:12 PM                                                                                                                    
                                                                                                                                
MR.  BARRON  turned  to  the slide  depicting  Cook  Inlet  Lease                                                               
Distribution [slide 5].  He  pointed out the slide represents the                                                               
major  companies  operating  in  the Cook  Inlet.    Again,  this                                                               
represents  a   mix,  with  clearly  Apache   Alaska  Corporation                                                               
(Apache) leading,  since that company has  picked up considerable                                                               
acreage.   In fact,  the company  has been  very aggressive.   He                                                               
cautioned that  the lease extension in  the bill is not  to allow                                                               
companies an  opportunity to "shoot  seismic."  While he  said he                                                               
isn't pointing any fingers, there is  a great deal of push to get                                                               
as  much  seismic shot  as  possible.    However, keep  in  mind,                                                               
companies do not  have to own leases to shoot  seismic.  Instead,                                                               
companies can obtain  a land use permit from the  state to "shoot                                                               
seismic."                                                                                                                       
                                                                                                                                
1:46:18 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER asked  whether  the number  of  leases and  the                                                               
acreage covered by the leases are based on the same proportion.                                                                 
                                                                                                                                
MR. BARRON answered relatively so,  especially in the Cook Inlet.                                                               
But, in general,  the division's leases are three  miles by three                                                               
miles.   He  offered a  "quick rule  of thumb"  to interpret  the                                                               
acreage depicted on the slide.   He referred to first column with                                                               
88 leases in  total, that the aforementioned  proportion of three                                                               
miles  by  three miles  could  be  multiplied  to arrive  at  the                                                               
approximately total acreage.                                                                                                    
                                                                                                                                
1:47:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON understood  that the  seismic was  held up                                                               
for Apache.   He asked whether  any allowance is made  for delays                                                               
in permitting.                                                                                                                  
                                                                                                                                
MR. BARRON answered that the intent  is decisions will be made on                                                               
a case-by-case basis.  The  company would need to provide details                                                               
on  the   work  planned  and   any  barriers  encountered.     He                                                               
anticipated  that companies  will  likely come  in with  bundles,                                                               
such  as packet  A,  B, and  C.   Thus  the leases  may  be in  a                                                               
grouping on  the North Slope  from west  to east.   He envisioned                                                               
the  division  would  grant  extensions for  packet  A  based  on                                                               
specific  work  programs.   However,  the  company may  not  have                                                               
performed any  work on leases in  packet C so the  division would                                                               
not grant an  extension.  Again, this would  be discretionary and                                                               
is part of the dialogue, he said.                                                                                               
                                                                                                                                
1:48:48 PM                                                                                                                    
                                                                                                                                
MR. BARRON  turned to slide  6, entitled, "What are  the benefits                                                               
of HB  198?"  He  noted that  companies are aware  the short-term                                                               
leases are somewhat problematic, which  the division is trying to                                                               
solve with this  bill.  The goal  of this bill will  be to afford                                                               
lessees holding  short-term leases  an opportunity to  finish up.                                                               
In essence, this  would benefit the state since  it would require                                                               
a  work  program,  plus  the division  believes  this  bill  will                                                               
increase the probability of bringing  leases to production, which                                                               
clearly will benefit the state.                                                                                                 
                                                                                                                                
1:49:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER asked whether it  will be beneficial to the                                                               
state as  a law of general  application that would apply  to both                                                               
the northern and southern part of the state.                                                                                    
                                                                                                                                
MR. BARRON  answered yes.  He  said the bill would  affect future                                                               
leasing  programs, regardless  of where  the areawide  leasing is                                                               
located.   He predicted the overall  effect of HB 198  will be to                                                               
allow  the state  to manage  its  oil and  gas leases  at a  much                                                               
higher level.                                                                                                                   
                                                                                                                                
1:50:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  inquired how  Mr. Barron would  respond to                                                               
critics  that this  would open  up  a secondary  market in  lease                                                               
futures where companies can hang on  to the lease for the purpose                                                               
of "flipping it"  to an adjacent holder or someone  else once the                                                               
work is done.                                                                                                                   
                                                                                                                                
MR.  BARRON  remarked  that  is  an  interesting  question.    He                                                               
anticipated a  company who has  been diligent in  performing work                                                               
will not likely be in a position  to "flip it."  He surmised that                                                               
the secondary  market may not  be there,  but there may  be added                                                               
value.    Besides, if  the  secondary  party has  more  financial                                                               
ability than  the first lessee,  it would represent  an advantage                                                               
to the state  since the secondary party would  bring the strength                                                               
of the  ability to  complete the  work and  bring the  unit under                                                               
production.   However, operators who originally  bought the lease                                                               
might be deemed as speculators,  probably haven't been performing                                                               
any work  on the leased  land.   Therefore it would  be difficult                                                               
for the  speculators to jump  the division's first  hurdle, which                                                               
is to identify any work performed.                                                                                              
                                                                                                                                
1:51:46 PM                                                                                                                    
                                                                                                                                
MR. BARRON acknowledged  that the secondary market  exists and it                                                               
is  a robust  market.    Clearly, that  is  evident  by the  work                                                               
already  done in  Cook Inlet.   For  example, the  aforementioned                                                               
Repsol lease is indicative of a  secondary lease market.  He said                                                               
[secondary  leases] represent  one  piece of  the industry  which                                                               
does bring value.                                                                                                               
                                                                                                                                
REPRESENTATIVE HAWKER  agreed.   He was unsure  whether it  was a                                                               
desirable  outcome to  allow  companies to  buy  up leased  land,                                                               
perform  very little  work and  then "flip  it" to  an incredibly                                                               
competent qualified  new operator.   In doing  so, it  will allow                                                               
the new  operator the ability  to operate for five  years without                                                               
the  lease  reverting  to the  state,  which  would  [effectively                                                               
bypass] the competitive bidding process.                                                                                        
                                                                                                                                
MR. BARRON responded that this  is the reason the lease extension                                                               
is  a one-time  extension and  the timeframe  is not  locked into                                                               
five years.   In  fact, the  extension may only  span one  or two                                                               
years.  He emphasized that  this process is clearly identified as                                                               
a  one-time  extension with  the  time  and  work program  to  be                                                               
determined by the department.                                                                                                   
                                                                                                                                
REPRESENTATIVE  HAWKER related  a scenario  in which  an operator                                                               
bought a lease, but did not  perform work and the lease is almost                                                               
expired.   If  the  lease  can be  "flipped"  to  a company  with                                                               
expertise to work  it, it would essentially be a  subsidy for the                                                               
value  of the  lease.   Moreover, it  would provide  an intrinsic                                                               
value to  a company  who has otherwise  failed completely  in its                                                               
obligations to invest and develop on the leased property.                                                                       
                                                                                                                                
MR.  BARRON answered  the department  would not  likely grant  an                                                               
extension in the  aforementioned instance since no  work had been                                                               
done by the first lessee.                                                                                                       
                                                                                                                                
REPRESENTATIVE  HAWKER wondered  whether the  committee ought  to                                                               
fine-tune the  process.   He said  this is  the reason  he didn't                                                               
pursue a similar bill early in the legislative session.                                                                         
                                                                                                                                
1:54:45 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE surmised the risk  of obtaining an extension would                                                               
be  taken up  by the  second purchaser.   He  suggested the  risk                                                               
would increase significantly  as the end term of  the first lease                                                               
approached.  He observed that  the better option for the original                                                               
lessee would  be to "flip  it" fairly  quickly to allow  time for                                                               
significant work  to be  accomplished by the  second lessee.   He                                                               
offered his belief that the leases were mostly competitive bids.                                                                
                                                                                                                                
MR.  BARRON clarified  the original  oil and  gas leases  are all                                                               
competitive bid leases.                                                                                                         
                                                                                                                                
CO-CHAIR FEIGE  pointed out the  department really does  not have                                                               
any control over  the high bidder.  He suggested  this bill could                                                               
result  in more  highly capitalized  companies buying  leases and                                                               
performing  more work  than the  original lessee.   In  brief, he                                                               
said this would let the market decide.                                                                                          
                                                                                                                                
MR. BARRON answered yes.                                                                                                        
                                                                                                                                
1:55:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON asked  for the  reason the  lease would                                                               
not automatically  revert back  to the state.   She  wondered why                                                               
the state would not revoke a  lease if a company was not actively                                                               
working the lease.                                                                                                              
                                                                                                                                
MR. BARRON  responded that the  primary lease term is  a contract                                                               
between  the state  and the  company which  gives the  lessee the                                                               
exclusive  right to  operate on  the land  for the  primary term.                                                               
Currently, the state does not  impose work obligations during the                                                               
primary term,  he advised.   Thus a  company can obtain  the land                                                               
under  the  current  10-year  lease  terms  and  could  hold  it.                                                               
Incidentally, that's the  reason the division added  the $250 per                                                               
acre rental  increase provision for  the last three years  of the                                                               
lease.   He  predicted this  change will  encourage companies  to                                                               
make wise business choices.                                                                                                     
                                                                                                                                
1:56:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON asked for clarification  on lease sales                                                               
between companies  noting the company  [selling the  lease] would                                                               
likely make a profit.                                                                                                           
                                                                                                                                
MR. BARRON  answered yes.   He  characterized the  transaction as                                                               
being  a business  arrangement between  two independent  parties.                                                               
For example,  party "A" owns  the lease,  party "B" wants  to own                                                               
the lease or  part of the lease.  The  companies would enter into                                                               
a private negotiation,  finalize the deal, and present  it to the                                                               
division  as  a lease  modification  to  reflect the  new  owner.                                                               
Hence the state  would not have any dialogue  associated with the                                                               
process since it is an independent land transaction.                                                                            
                                                                                                                                
1:57:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   SEATON  remarked   that   companies  are   often                                                               
recruited to  come to Alaska and  drill by the lessee.   In fact,                                                               
this type of  mechanism has brought a number of  companies to the                                                               
state,  such  as Repsol  and  Armstrong.    He  said he  is  less                                                               
concerned  about companies  selling their  leases since  it means                                                               
the lessee had to convince another  company to buy the lease.  He                                                               
expressed  support for  the lease  extension provision,  which he                                                               
characterized as  being similar to Norway's  requirement for work                                                               
commitments.   Ultimately this  will be  beneficial in  Alaska in                                                               
terms of production, he said.                                                                                                   
                                                                                                                                
REPRESENTATIVE SEATON  referred to  page 2,  lines 10-29,  to the                                                               
language "automatic extensions"  which is deleted.   He asked for                                                               
clarification on  the effect since  the language on page  2, line                                                               
14 allows for automatic extensions, [which seems contradictory].                                                                
                                                                                                                                
MR. BARRON  responded that automatic  extensions will  occur, but                                                               
will be limited  to instances in which the  property is committed                                                               
to a unit or is under current production.                                                                                       
                                                                                                                                
REPRESENTATIVE  SEATON questioned  whether  the  language in  the                                                               
bill is referenced correctly.                                                                                                   
                                                                                                                                
2:01:16 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE said it seems  as though the "automatic extension"                                                               
language was moved from line 10 to line 14.                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON  again referred again  to page 2,  line 10-                                                               
29.  He argued that  removing the language "automatic extensions"                                                               
would eliminate automatic extensions.   The bill would set up the                                                               
condition that  if the lease  is not automatically  extended, the                                                               
other  provisions  will  occur;  however, the  ability  to  offer                                                               
"automatic extensions" has been removed.                                                                                        
                                                                                                                                
MR.  BARRON  remarked  that  the division  and  the  sponsor  are                                                               
comfortable with  the language, which read  [original punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     An  oil  and gas  lease  or  gas  only lease  shall  be                                                                  
     extended   beyond  its   primary  term   [AUTOMATICALLY                                                                  
     EXTENDED] if,  at the end  of the primary term,  oil or                                                                  
     gas  is produced  in paying  quantities from  the lease                                                                  
     and for  so long thereafter  as oil or gas  is produced                                                                    
     in paying quantities from the  lease or if the lease is                                                                    
     committed to a unit approved by the commissioner.                                                                          
                                                                                                                                
MR.  BARRON  indicated  the aforementioned  language  provides  a                                                               
clear way  to indicate  the lease  is extended as  long as  it is                                                               
committed to a unit or is producing.                                                                                            
                                                                                                                                
CO-CHAIR FEIGE reinforced  that the language does  read "shall be                                                               
extended."                                                                                                                      
                                                                                                                                
2:02:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK  suggested rather than  saying "automatically                                                               
extended"  it could  read, "extended  beyond  its primary  term,"                                                               
which means the same thing.                                                                                                     
                                                                                                                                
[MR. BARRON nodded yes.]                                                                                                        
                                                                                                                                
CO-CHAIR FEIGE concurred that "shall  be extended" and "if oil or                                                               
gas is produced in paying quantities" [seems to cover this].                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  maintained his concern is  for the sponsor                                                               
to  review the  language related  to automatic  extensions to  be                                                               
certain it functions as intended.                                                                                               
                                                                                                                                
CO-CHAIR  FEIGE  offered  his  belief that  the  essence  of  the                                                               
"automatically extended" is maintained in the proposed language.                                                                
                                                                                                                                
2:03:28 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER asked whether this  bill is likely to change the                                                               
division's policy  on lease terms  or if the department  will use                                                               
the five  or seven year leases  to encourage companies or  if the                                                               
leases would automatically be 10-year leases.                                                                                   
                                                                                                                                
MR.  BARRON answered  that the  division  really prefers  10-year                                                               
leases, which are called "seven  plus three" leases.  This allows                                                               
the division to  grant a 10-year lease, but  retain the potential                                                               
elevation in rental  rates in years 8-10 to encourage  work to be                                                               
completed  in the  seventh year,  which  fits in  well with  good                                                               
business practices.   However, the "seven plus  three" leases are                                                               
not eligible  for any  extension since the  division does  not go                                                               
beyond ten-year leases.                                                                                                         
                                                                                                                                
2:04:30 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  asked whether the leases  are considered seven-                                                               
year leases.                                                                                                                    
                                                                                                                                
MR. BARRON answered  no; that the oil and gas  leases are 10-year                                                               
leases.  The  division refers to them as  seven-year leases since                                                               
the first seven years fall under the low-rental rates.                                                                          
                                                                                                                                
CO-CHAIR  SADDLER remarked  that  the "seven  plus three"  leases                                                               
would be similar to balloon payments.                                                                                           
                                                                                                                                
2:04:49 PM                                                                                                                    
                                                                                                                                
MR. BARRON  said this  bill would clearly  give the  division the                                                               
ability to  manage its  land over  the next  five years  on lease                                                               
sales  that  were  originally five-year  and  seven-year  leases.                                                               
Additionally,  HB 198  would  give the  division  the ability  to                                                               
manage  the land  as  short-term  leases in  the  event that  the                                                               
division  decides  to  let  additional  five-year  or  seven-year                                                               
leases.                                                                                                                         
                                                                                                                                
2:05:21 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER asked  whether it would be a  fair assessment to                                                               
state  that  the  division  does not  offer  any  more  five-year                                                               
leases.                                                                                                                         
                                                                                                                                
MR. BARRON answered yes.                                                                                                        
                                                                                                                                
CO-CHAIR SADDLER  clarified the aforementioned scenario  would be                                                               
more of an escalator than a balloon payment.                                                                                    
                                                                                                                                
[MR. BARRON nodded yes.]                                                                                                        
                                                                                                                                
CO-CHAIR FEIGE commented that the  division has built the "nudge"                                                               
into the current 10-year leases.                                                                                                
                                                                                                                                
MR. BARRON answered yes.                                                                                                        
                                                                                                                                
2:05:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON  said he had shared  Representative Hawker's                                                               
concerns at  the time the bill  was drafted.  He  emphasized that                                                               
he,  too,  did not  want  the  bill  to  be used  to  "warehouse"                                                               
significant  acreage.   He offered  his belief  that HB  198 will                                                               
meet those  needs, is a good  bill, and he encouraged  members to                                                               
support it.                                                                                                                     
                                                                                                                                
2:06:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON  asked  why work  agreements  are  not                                                               
included in the initial leases.                                                                                                 
                                                                                                                                
MR. BARRON replied  that the division is  not statutorily allowed                                                               
to do so.                                                                                                                       
                                                                                                                                
MR. BARRON  explained that Norway  expends considerable  funds to                                                               
build  consortiums and  gain seismic  information, which  is made                                                               
public to  companies interested in  leases - prior to  any leases                                                               
being issued.   However, in  the U.S.  that doesn't happen  so at                                                               
the  time of  the lease,  U.S. companies  really don't  know what                                                               
resource  is  "underneath  them."   For  that  reason,  it  isn't                                                               
reasonable for the  state to impose work  programs on exploration                                                               
areas.    He characterized  it  as  being considered  "an  unfair                                                               
hurdle" and  he thought  industry would  step away  from it.   In                                                               
fact,  Alaska would  be the  sole state  to impose  that type  of                                                               
requirement.                                                                                                                    
                                                                                                                                
2:08:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON understood that Norway  hires companies                                                               
to perform the seismic work.                                                                                                    
                                                                                                                                
MR. BARRON  answered yes.   In essence, it  is an expense  to the                                                               
country  and to  the consortium.   He  pointed out  that Norway's                                                               
tracts  are sometimes  "20-by-20 mile"  or "30-by-30  mile" areas                                                               
whereas Alaska's leases  are "3-by-3 mile" tracts.   He described                                                               
the comparison as being "two ends of the spectrum."                                                                             
                                                                                                                                
2:08:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON commented that  Norway performs 2D seismic,                                                               
with the work  commitment within three years  and Norway performs                                                               
3D  seismic to  further  identify  the resource.    He asked  for                                                               
clarification  on the  usefulness  of having  an open-ended  unit                                                               
since the company really doesn't have to produce it.                                                                            
                                                                                                                                
MR. BARRON  answered that typically,  unit agreements  have five-                                                               
year  or  10-year  timeframes,   with  automatic  expirations  if                                                               
production doesn't  happen.  He  recalled only one major  unit in                                                               
the  Cook Inlet  without production;  however, drilling  has been                                                               
aggressively performed.   He indicated it is generally  not a big                                                               
issue  since  most  units  have  moved forward.    In  fact,  the                                                               
division is  "dogged" in its  efforts to have units  formed based                                                               
on  proven hydrocarbons,  not on  potential  hydrocarbons -  even                                                               
though that  is in  regulations.   Thus the  division can  form a                                                               
unit based  on potential;  however, the  division drives  hard to                                                               
have the well drilled and the  resource to be proven.  Basically,                                                               
that would represent  the point at which the  division would form                                                               
units, not  before.  As a  rule, the division insists  on a known                                                               
hydrocarbon resources.   In conclusion, he said that  it's not in                                                               
anyone's  best interest  to  not produce  since  the company  has                                                               
already  incurred  the expenses  and  is  paying rental  fees  on                                                               
leases.  Finally,  the company will enjoy the asset  base as soon                                                               
as the production is on-line.                                                                                                   
                                                                                                                                
2:11:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON referred  to [page  2] lines  12-13, which                                                               
read, " ...  the lease and for  so long thereafter as  oil or gas                                                             
is produced in  paying quantities from the lease or  if the lease                                                               
is  committed  to a  unit  approved  by  the commissioner."    He                                                               
recalled  a Kenai  Peninsula lease  that  was held  for the  West                                                               
Eagle  unit.   He asked  whether the  division has  been able  to                                                               
secure work commitments.                                                                                                        
                                                                                                                                
MR. BARRON  answered that  the time of  unitization is  the point                                                               
when the work agreement is imposed.                                                                                             
                                                                                                                                
2:12:49 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE recalled  the division  offers leases  other than                                                               
oil and gas leases.  He  asked whether other lease programs could                                                               
also benefit from this method.                                                                                                  
                                                                                                                                
MR.  BARRON responded  that it  is possible.   However,  the only                                                               
other lease  program the  division engages  in is  for geothermal                                                               
leases.   He  reported this  program hasn't  grown very  much and                                                               
represents  a   small  part  of   the  overall   lease  programs.                                                               
Certainly, this bill clearly targets oil and gas leases.                                                                        
                                                                                                                                
2:13:25 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE inferred  that while the division  has other lease                                                               
programs the utility of extensions doesn't apply at this time.                                                                  
                                                                                                                                
MR. BARRON said that is correct.                                                                                                
                                                                                                                                
2:13:38 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SADDLER  asked  whether  many companies  use  land  use                                                               
permits to perform seismic in an area, but do not buy a lease.                                                                  
                                                                                                                                
MR.  BARRON answered  not  so  much anymore.    He recalled  that                                                               
companies  used to  go out  and "shoot  seismic on  spec" and  in                                                               
fact, there are  still seismic companies that  sell their seismic                                                               
information.  However,  he did not necessarily think  oil and gas                                                               
companies would do  so.  Instead, oil and gas  companies will buy                                                               
the "spec seismic" for future lease sales.                                                                                      
                                                                                                                                
2:14:28 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER asked for the  biggest delay in the process from                                                               
leasing to exploration and production.                                                                                          
                                                                                                                                
MR. BARRON said clearly, the  first process is to acquire seismic                                                               
information  and as  diligent as  some companies  are, they  have                                                               
encountered  hurdles for  federal permits  to operate  on federal                                                               
land.   Clearly, that effort poses  a hurdle, he said.   The more                                                               
complicated  the geographical  area, the  more time  it takes  to                                                               
process 3D  seismic, and to  reprocess, stack, and  reanalyze the                                                               
data.   Certainly, it can take  several years to process  since a                                                               
company would not want to drill a well in the wrong spot.                                                                       
                                                                                                                                
MR.  BARRON  added  that  securing  a location  to  drill  or  to                                                               
mobilizing a rig  can create hurdles in some areas.   Granted, if                                                               
the unit  is a good prospect,  companies can find rigs  and bring                                                               
them into the state.                                                                                                            
                                                                                                                                
MR.  BARRON  said  beyond  that would  be  permitting  delays  or                                                               
ensuring all the permits are in  place.  He characterized this as                                                               
being is  a "time  value of  money" discussion.   He  pointed out                                                               
another limiting factor is the  winter season on the North Slope,                                                               
which essentially  allows three months  to drill.   To illustrate                                                               
this, he asked  members to consider that a  10-year lease program                                                               
with  only  three  months  per year  of  drilling  time  actually                                                               
translates to about four years.                                                                                                 
                                                                                                                                
2:16:52 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  recalled some problems one  company experienced                                                               
to  "shoot  seismic" along  the  borders  of the  Kenai  National                                                               
Wildlife Refuge.   He asked whether this illustrates  some of the                                                               
permitting delays that can happen.                                                                                              
                                                                                                                                
MR.  BARRON answered  that the  U.S. Fish  & Wildlife  Service is                                                               
allowing seismic  activities to  take place on  Native inholdings                                                               
in the Kenai National Wildlife Refuge,  but only to the border of                                                               
the  inholdings  and the  activity  cannot  cross the  boundaries                                                               
outside of the Native inholdings  lands.  He predicted this could                                                               
be a "crippling event," in terms  of the ability to acquire "good                                                               
seismic" information.  In  particular, truncating where companies                                                               
can put their  receivers has been detrimental.   He described the                                                               
process  to  accomplish  activities  on  federal  land  as  being                                                               
onerous.                                                                                                                        
                                                                                                                                
MR. BARRON  said, then again,  issues with respect  to endangered                                                               
species   habitats  also   must   be   managed  through   federal                                                               
organizations   and  rightfully   so.     However,   unreasonably                                                               
withholding permission  to conduct that  type of work  presents a                                                               
real burden for companies, he said.                                                                                             
                                                                                                                                
MR.  BARRON pointed  out that  Shell has  been held  up for  many                                                               
years by  lawsuits.  In  any case, no  matter how well  the state                                                               
handles  permitting  reform,  the  ability for  parties  to  stop                                                               
activities through legal action  remains, which is clearly within                                                               
their rights.                                                                                                                   
                                                                                                                                
2:18:58 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE  inquired whether  there  are  provisions in  the                                                               
standard lease agreements  that if a delay happens,  the lease is                                                               
extended.   For  example,  he  asked whether  the  lease that  is                                                               
delayed due to Beluga whales could be extended.                                                                                 
                                                                                                                                
MR. BARRON answered no.                                                                                                         
                                                                                                                                
2:19:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON asked whether there  is any possibility                                                               
of allowing for permanent roads on state lands in some areas.                                                                   
                                                                                                                                
MR.  BARRON  said  he  is  an unabashed  supporter  of  Roads  to                                                               
Resources  (R2R).    He  strongly   suggested  the  state  should                                                               
investigate this  further.  He  offered his belief the  west Cook                                                               
Inlet is another area that  the state should investigate building                                                               
permanent roads.   He pointed  out that  each year ice  roads are                                                               
built  on the  Alpine, Badami,  and  Point Thomson  units on  the                                                               
North  Slope  since  the  development  is  roadless  development.                                                               
However, if  a permanent road had  been built to the  Badami unit                                                               
it could  have resulted  in less  expensive exploration  by using                                                               
short ice roads off of the  permanent road.  He characterized the                                                               
Alpine  unit as  a great  development; however,  from Kuparak  to                                                               
Alpine  represents  another  gap   without  roads,  which  is  an                                                               
impediment  to  exploration.     Similarly,  there  is  a  marked                                                               
difference between the east and west  sides of Cook Inlet.  After                                                               
all one  side has roads  and the other does  not have roads.   In                                                               
fact,  he  identified the  lack  of  infrastructure as  being  an                                                               
impediment.  He highlighted the  importance of being able to move                                                               
people and equipment  quickly, which makes all  the difference in                                                               
the  world  to   operators.    He  pointed  out   this  has  been                                                               
demonstrated  by   the  robust   development  in   North  Dakota,                                                               
Oklahoma, Colorado,  Texas, Ohio, and California.   He attributed                                                               
the  difference between  the  development  in the  aforementioned                                                               
Lower 48  states and  Alaska as  being due to  a lack  of general                                                               
infrastructure.                                                                                                                 
                                                                                                                                
2:22:17 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE concurred with the  difficulties of operating with                                                               
ice roads.                                                                                                                      
                                                                                                                                
MR. BARRON  mentioned several areas  in the state that  also pose                                                               
difficulties to  access, such as the  Umiat oil field due  to the                                                               
terrain.                                                                                                                        
                                                                                                                                
2:22:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  OLSON asked  whether it  is possible  to put  the                                                               
fiscal note at zero.                                                                                                            
                                                                                                                                
MR. BARRON replied that a zero  fiscal note would be a good idea.                                                               
Initially, the division debated whether  it would fall within its                                                               
own ability  to budget  and at  the time he  was uncertain  so he                                                               
submitted an indeterminate fiscal  note; however, he now believes                                                               
the zero fiscal note would be fine.                                                                                             
                                                                                                                                
2:23:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON recalled  previously discussing  permanent                                                               
roads.   He asked whether  any statutory requirement needs  to be                                                               
changed or if  it the decision to build permanent  roads is based                                                               
on the department's policy.                                                                                                     
                                                                                                                                
MR. BARRON said he believed that is  correct.  He said he did not                                                               
think  it  was  a  statutory provision,  but  the  areawide  best                                                               
interest finding  (BIF) contains a provision  that exploration be                                                               
conducted on ice roads and ice paths.                                                                                           
                                                                                                                                
2:24:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  recalled   the  previous  discussions  on                                                               
permanent roads.  He expressed  the committee's frustration since                                                               
it would like to advance main  corridor roads that make sense for                                                               
other development.   He  wanted to  makes sure  the DNR  is aware                                                               
this this  committee believes  the policy  and finding  should be                                                               
revisited;  however, he  understood the  decision rests  with the                                                               
administration.   Still,  he encouraged  the  department to  move                                                               
forward.   Again, he  said this committee  has held  hearings and                                                               
determined that  the committee and legislature  is very receptive                                                               
to  the DNR  revising its  BIF's  policy to  allow main  corridor                                                               
roads  to be  built.   He  recalled the  legislature funding  $70                                                               
million  for a  gravel  road to  Mount Spurr.    In essence,  the                                                               
department needs  to revise its BIF.   He offered his  belief the                                                               
committee has done  all it can do to encourage  the department to                                                               
move  in  that  direction.    At  some  point,  it's  up  to  the                                                               
department to reanalyze the policy, he said.                                                                                    
                                                                                                                                
2:27:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON  asked  whether  the  department  will                                                               
consider changes to the policy or  if not, to outline reasons not                                                               
to change the policy.                                                                                                           
                                                                                                                                
MR. BARRON  responded that to  begin with, one of  the division's                                                               
roles  is  as  the  "protector"  of  state  land.    He  said  by                                                               
definition the nature of exploration  should be temporary.  Since                                                               
developing  a permanent  road will  impact the  land forever,  it                                                               
seems  premature to  build a  road until  the resource  is known.                                                               
Therefore,  the best  way to  build roads  for exploration  is to                                                               
build  ice roads.    He characterized  the  division's policy  as                                                               
being based  on environmental protections.   The division doesn't                                                               
want roads  to be built to  "nowhere."  Currently, the  state has                                                               
co-sponsored  ice  roads  to  Badami   every  year  for  drilling                                                               
activities.     Once   again,  Point   Thomson  has   been  under                                                               
consideration, which is  just further down the ice  road from the                                                               
Badami unit.   He reiterated the department's  concern, such that                                                               
nature  of exploration  potentially results  in a  "scar" on  the                                                               
land  for no  value.   However,  once an  area is  known to  have                                                               
ongoing development,  such as the  Badami unit, the  state should                                                               
make a  hard push for road  access; however, it should  not do so                                                               
during the  exploration phase.   In short,  he said  there's good                                                               
reason for the [policy].                                                                                                        
                                                                                                                                
2:29:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P. WILSON asked how  many permanent roads exist on                                                               
the North Slope.                                                                                                                
                                                                                                                                
MR. BARRON  directed attention to  the map on the  committee room                                                               
wall  that depicts  the  North Slope,  which  identifies all  the                                                               
roads.                                                                                                                          
                                                                                                                                
REPRESENTATIVE  P.  WILSON  asked  whether  those  are  permanent                                                               
roads.                                                                                                                          
                                                                                                                                
MR.  BARRON answered  yes.   In fact,  the infrastructure  in the                                                               
existing fields has  been robust, but once away from  the area is                                                               
not.    For  example,  Great  Bear  Petroleum  has  acquired  and                                                               
performed exploration  work using existing gravel  pads right off                                                               
the  highway, rather  than  to build  an ice  road  via a  waiver                                                               
granted by the division.                                                                                                        
                                                                                                                                
MR. BARRON,  with respect to the  fiscal note, said that  it will                                                               
be  zero fiscal  note, given  the  balance between  leases to  be                                                               
returned  versus activity  associated,  which  also includes  the                                                               
value of the work programs.   Thus the revenue to the state would                                                               
be zero, he concluded.                                                                                                          
                                                                                                                                
2:31:21 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE opened public testimony on HB 198.                                                                               
                                                                                                                                
2:31:45 PM                                                                                                                    
                                                                                                                                
LISA  PARKER,   Manager,  Government  Relations,   Apache  Alaska                                                               
Corporation  (Apache),  paraphrased  from written  testimony,  as                                                               
follows [original punctuation provided]:                                                                                        
                                                                                                                                
     Thank you for  the opportunity to comment  on [HB] 198,                                                                    
     which would  allow the  Commissioner of  the Department                                                                    
     of Natural Resources to extend  the term of oil and gas                                                                    
     leases or  gas only leases beyond  the original primary                                                                    
     term.   This legislation  will offer an  alternative to                                                                    
     last minute  rushes to create units,  propose placement                                                                    
     of  rigs or  other lease  saving operations  that would                                                                    
     allow an operator  to hold its oil and gas  lease.  The                                                                    
     DNR  has  seen this  done  on  a repeated  basis  using                                                                    
     valuable time  while the company continues  to hold the                                                                    
     unit  or oil  and  gas lease  while requesting  further                                                                    
     extensions with no actual work being performed.                                                                            
                                                                                                                                
2:32:36 PM                                                                                                                    
                                                                                                                                
MS.  PARKER continued  to read  from written  testimony [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     Apache  Alaska  Corporation  (Apache) is,  in  general,                                                                    
     supportive of this  legislation.  As a  new operator in                                                                    
     Alaska  we  have  acquired   a  significant  amount  of                                                                    
     acreage  which has  leases that  will expire  before we                                                                    
     are   able   to   complete  our   seismic   exploration                                                                    
     activities,  which  help  us  delineate  what,  if  any                                                                    
     potential oil or gas resources are under our leases.                                                                       
                                                                                                                                
                                                                                                                                
     Since  entering Cook  Inlet in  2010,  Apache has  been                                                                    
     aggressive  in  exploration  and  development  efforts.                                                                    
     Apache  has and  continues to  find new  and innovative                                                                    
     ways  to  conduct seismic  so  as  to create  only  the                                                                    
     slightest  disturbance  while  gathering  good  quality                                                                    
     data.    We  have employed  a  cutting-edge  technology                                                                    
     that,  in  2012,  resulted in  acquiring  over  200,000                                                                    
     acres  of seismic  data within  the  Cook Inlet  basin.                                                                    
     There  is still  a  lot  of work  left  to  do and,  in                                                                    
     working with the Department, Apache  is hopeful that it                                                                    
     will have  the opportunity  to continue its  3D seismic                                                                    
     program to  better identify the  potential of  the Cook                                                                    
     Inlet Basin.                                                                                                               
                                                                                                                                
2:33:39 PM                                                                                                                    
                                                                                                                                
MS. PARKER mentioned  Apache set its first well in  the fall 2012                                                               
in Cook Inlet.  She recommended  two changes to the bill.  First,                                                               
she suggested  deleting the requirement  for a  performance bond.                                                               
Second,  she suggested  changing the  $250 per  acre bond  to not                                                               
exceed 150  percent of  the rate  for the  preceding year  of the                                                               
lease term.                                                                                                                     
                                                                                                                                
MS.  PARKER said  in closing,  Apache urges  support for  HB 198.                                                               
She  remarked   that  John   Hendrix,  General   Manager,  Apache                                                               
Corporation, has  stated on numerous occasions  that "Apache does                                                               
not sit  on its assets."   She  indicated that Apache  would like                                                               
the opportunity to  bring their leases into production  and to do                                                               
this the company  needs to delineate its  assets before beginning                                                               
exploration  efforts.    She  indicted this  is  one  reason  the                                                               
company  has worked  with Representative  Olson, the  House Labor                                                               
and Commerce  Standing Committee, and the  administration on this                                                               
issue.                                                                                                                          
                                                                                                                                
2:34:47 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE,  after first  determining no  one else  wished to                                                               
testify, closed public testimony on HB 198.                                                                                     
                                                                                                                                
2:35:06 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SADDLER  offered his support for  the bill.  He  said he                                                               
thought the bill  will provide the division with  a flexible tool                                                               
to encourage production as well  as offer flexible terms for each                                                               
circumstance.    Given the  imperatives  to  quickly produce  new                                                               
sources of natural  gas for all of Alaska, this  bill makes sense                                                               
and is a good idea.                                                                                                             
                                                                                                                                
CO-CHAIR FEIGE offered his support for  the bill.  He stated that                                                               
this bill will  allow the state to standardize  its lease periods                                                               
and  provide   adequate  time  to  all   entities  interested  in                                                               
producing  oil and  gas,  which generates  tax  revenues for  the                                                               
state.   He offered his belief  that it puts the  interest of the                                                               
state and  companies in  greater alignment.   Moreover,  it takes                                                               
leases  that could  potentially expire  and potentially  languish                                                               
before re-leasing,  which will allow  work started in  good faith                                                               
to continue  and can result  in more  production for more  of the                                                               
state's  lands sooner,  all of  which supports  the state's  goal                                                               
with respect to more production.                                                                                                
                                                                                                                                
2:36:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER made a motion  to adopt a zero fiscal note.                                                               
There being  no objection,  the committee  adopted a  zero fiscal                                                               
note.                                                                                                                           
                                                                                                                                
REPRESENTATIVE TUCK said he supported  the bill.  He further said                                                               
that it's in the state's  best interest to obtain production from                                                               
its  leases and  to  allow  the companies  more  time  to get  to                                                               
production.  He  characterized it as a win-win  situation for all                                                               
parties.   He also thought the  10-year lease maximum was  a good                                                               
thing.                                                                                                                          
                                                                                                                                
REPRESENTATIVE TARR said she supported  the bill.  She liked that                                                               
the bill  enforces the concept of  the duty to produce,  plus the                                                               
"seven  plus three  leases" of  flexibility will  give the  state                                                               
more authority to ensure that work is being done.                                                                               
                                                                                                                                
2:37:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P. WILSON moved to  report HB 198 out of committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
notes.   There being no objection,  HB 198 was reported  from the                                                               
committee.                                                                                                                      
                                                                                                                                
2:38:29 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Resources Standing Committee meeting was adjourned at 2:40 p.m.                                                                 

Document Name Date/Time Subjects
HB198 ver C.pdf HRES 4/6/2013 1:00:00 PM
HB 198
HB198 Sponsor Statement.pdf HRES 4/6/2013 1:00:00 PM
HB 198
HB198 Sectional Summary.pdf HRES 4/6/2013 1:00:00 PM
HB 198
HB198-DNR-DOG-4-4-13.pdf HRES 4/6/2013 1:00:00 PM
HB 198
HB 198.Apache letter.pdf HRES 4/6/2013 1:00:00 PM
HB 198
HRES HB198 Hilcorp Letter 4.6.13.PDF HRES 4/6/2013 1:00:00 PM
HB 198
HRES HB198 DNR Presentation 4.6.13.pdf HRES 4/6/2013 1:00:00 PM
HB 198