Legislature(1995 - 1996)
02/07/1996 09:37 AM House RES
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= bill was previously heard/scheduled
HOUSE RESOURCES STANDING COMMITTEE
February 7, 1996
9:37 a.m
MEMBERS PRESENT
Representative Joe Green, Co-Chairman
Representative William K. "Bill" Williams, Co-Chairman
Representative Scott Ogan, Vice Chairman
Representative Alan Austerman
Representative John Davies
Representative Pete Kott
Representative Irene Nicholia
MEMBERS ABSENT
Representative Ramona Barnes
Representative Don Long
COMMITTEE CALENDAR
HOUSE BILL NO. 325
"An Act authorizing suspension of payment of a portion of the
royalty due the state for initial production of heavy oil from
wells on the Arctic Slope."
- PASSED HB 325 OUT OF COMMITTEE
*HOUSE BILL NO. 313
"An Act relating to fees for big game tags for wolves; and
providing for an effective date."
- HEARD AND HELD
(* First Public Hearing)
PREVIOUS ACTION
BILL: HB 325
SHORT TITLE: ROYALTY SUSPENSION: N. SLOPE HEAVY OIL
SPONSOR(S): REPRESENTATIVE(S) GREEN
JRN-DATE JRN-PG ACTION
04/28/95 1633 (H) READ THE FIRST TIME - REFERRAL(S)
04/28/95 1633 (H) OIL & GAS, RESOURCES, FINANCE
10/17/95 (H) O&G AT 1:00 PM ANCHORAGE LIO
10/17/95 (H) MINUTE(O&G)
11/14/95 (H) O&G AT 2:00 PM ANCHORAGE LIO
11/14/95 (H) MINUTE(O&G)
01/18/96 (H) O&G AT 10:00 AM CAPITOL 124
01/18/96 (H) MINUTE(O&G)
01/23/96 (H) O&G AT 9:00 AM CAPITOL 124
01/23/96 (H) MINUTE(O&G)
01/24/96 2522 (H) O&G RPT CS(O&G) NT 5DP 1DNP 1NR
01/24/96 2522 (H) DP: OGAN, ROKEBERG, WILLIAMS, BRICE,
01/24/96 2522 (H) B.DAVIS
01/24/96 2522 (H) DNP: FINKELSTEIN
01/24/96 2522 (H) NR: G.DAVIS
01/24/96 2522 (H) 2 FISCAL NOTES (DNR, DOR)
01/26/96 (H) RES AT 8:00 AM CAPITOL 124
01/26/96 (H) MINUTE(RES)
02/07/96 (H) RES AT 8:00 AM CAPITOL 125
BILL: HB 313
SHORT TITLE: BIG GAME TAGS FOR WOLVES
SPONSOR(S): REPRESENTATIVE(S) OGAN
JRN-DATE JRN-PG ACTION
04/20/95 1399 (H) READ THE FIRST TIME - REFERRAL(S)
04/20/95 1399 (H) RESOURCES, FINANCE
02/07/96 (H) RES AT 8:00 AM CAPITOL 124
WITNESS REGISTER
- THERE WERE NO WITNESSES
ACTION NARRATIVE
TAPE 96-14, SIDE A
Number 000
CO-CHAIRMAN JOE GREEN called the House Resources Committee meeting
to order at 9:37 a.m. Members present at the call to order were
Representatives Green, Williams, Ogan, Austerman, Davies and
Nicholia. Representatives Barnes, Kott, and Long were absent.
CO-CHAIRMAN GREEN apologized for the delay of meeting and stated
that the committee would hear HB 325 and HB 313.
HB 325 - ROYALTY SUSPENSION: NORTH SLOPE HEAVY OIL
Number 073
REPRESENTATIVE JOHN DAVIES moved for the adoption of his proposed
amendment.
CO-CHAIRMAN GREEN objected for the purposes of discussion.
Number 110
REPRESENTATIVE DAVIES said the main thrust of his amendment is
patterned after HB 207 and provides that the commissioner makes the
decision whether a grant of royalty holiday or reduction would be
in order.
REPRESENTATIVE DAVIES said his concern about the process as
proposed in CSHB 325 is that the legislature makes the decision
whether it is in the economic interest of the state to grant the
five year royalty holiday. Under HB 207, there is a mechanism to
find out what the detailed economics of the proposal are to
understand the company's position with respect to whether it is
truly a marginal field.
Number 222
REPRESENTATIVE DAVIES referred to his two-page amendment:
Page 1, line 1: Delete "exemption from payment of royalty" Insert
"modification of royalty due."
His said the amendment provides that the tax holiday might be a one
percent royalty rather than a zero royalty.
Number 267
REPRESENTATIVE DAVIES said the principal part of the amendment is:
Page 2, following line 18. Insert a new subparagraph to read"
"(A) demonstrates to the satisfaction of the Legislative Budget and
Audit Committee, hereinafter "committee", that modification of
royalty due under this subsection is reasonably necessary to allow
for oil production from the lease that would not otherwise be
feasible; as a condition of meeting the requirement set out in this
subparagraph, the committee may require the lessee making
application for the royalty modification to pay for the services of
an independent contractor, qualified to evaluate hydrocarbon
development, production, transportation, and economics, who is
selected by the committee to assist in evaluating the application
and financial and technical data; selection of an independent
contractor under this subparagraph is not subject to AS 36.30.020;
if, on the basis of the lessee's application, the report of the
independent contractor, and other evidence of record, the committee
finds a modification from payment of royalty under this subsection
is reasonably necessary to allow for the production of the oil from
the lease, the committee shall submit a joint resolution
authorizing the modification; the modification shall take effect
upon adoption of the resolution by both houses of the legislature;
and"
REPRESENTATIVE DAVIES said the language is modeled from the
language in HB 207 which requires a company requesting an exemption
to come before the Legislative Budget and Audit Committee (LB&A).
The LB&A would, under this amendment, be allowed to subcontract
with an independent, experienced oil contractor to evaluate the
proposal in full detail. The committee would submit a joint
resolution to the legislature and upon adoption of the joint
resolution, the royalty modification would be in effect.
REPRESENTATIVE DAVIES continued, without some kind of procedure
like this, the legislature simply does not have the detailed
knowledge to know whether it is in the best interest of the people
of Alaska to make this modification. Without going through this
step, we can not reasonably say to ourselves and our constituents
that we have examined the issue carefully enough on both sides to
make a reasonable determination.
Number 433
CO-CHAIRMAN WILLIAMS felt that the Legislative Budget and Audit
procedure might not be that expedient.
REPRESENTATIVE DAVIES said the way the amendment is worded, the
legislature would make that determination. He talked about a delay
of half a year in a project where people have spent years trying to
determine if it is feasible and where the development of the fields
will take years and may be in production for 40 years. He said,
for us to take six months to consider that when we are talking
about a multi-million, maybe billion, dollar deal, that six months
contemplation is probably not out of order.
Number 590
CO-CHAIRMAN GREEN appraised Co-Chairman Williams concern to mean
that if there was no determination by LB&A during that summer or in
ample time for contracts to be let, the legislature would have to
come back in session and make that decision, the applicant will
miss the drilling window in the winter and maybe lose a year
instead of six months.
CO-CHAIRMAN GREEN explained that the individuals spending the money
have concerns and they have to go to their board for approval. If
they go to the board this year for a process that may not be
determined until next year, and then it is uncertain on a well-by-
well basis, it has a dampening effect in the board room.
Number 684
C0-CHAIRMAN GREEN expressed a feeling that the oil companies might
go to Canada or Venezuela where they know what the ground rules and
risk potentials are. He said other countries do make these
concessions. He said the industry prefers to know or to have a
one, two or three percent royalty floor than to just leave it open
because they kept their infrastructure going and drilled a certain
number of wells.
Number 812
REPRESENTATIVE DAVIES responded that the oil companies could make
that case to the Legislative Budget & Audit Committee. The LB&A
would be able to make that determination and say that we would set
the royalty at whatever level it was that pencilled out. The way
we have passed the bill now it is a blank check. It is not only a
blank check for the companies that are before us right now that
have showed us a little bit of data, not enough to make a
reasonable decision on, but for any company that comes in in the
future. We are saying it is a zero royalty for every company that
meets the 20 API test.
REPRESENTATIVE DAVIES said, from the people of the state of
Alaska's point of view, we need to know that this is a deal that
makes sense. This is the people of Alaska's oil. We represent
them and, under these terms, it would literally be the legislature
that is making the decision; the final determination as to whether
we grant the royalty reduction or tax holiday. We have a duty to
the people of Alaska to make sure it pencils out from their point
of view.
NUMBER 933
CO-CHAIRMAN GREEN asked for a motion to adopt the committee
substitute as a working document.
REPRESENTATIVE OGAN moved to adopt the committee substitute for HB
325. There being no objection, it was so ordered.
Number 1010
CO-CHAIRMAN GREEN explained that in the committee substitute there
is a time limit for which this opportunity exists. The House
Special Committee on Oil and Gas, like Representative Davies, felt
that this should not be "carte blanche" forever. It should be for
a restricted period of time.
CO-CHAIRMAN GREEN alluded to comments made by Representative Davies
about requesting information from the oil companies and not
receiving enough information for him to make a decision. He said,
therein, lies part of the uncertainty. How long will it be in the
following years meeting of the legislature that there will not have
been enough information presented and the oil companies miss
another drilling season. That is the uncertainty the operators are
concerned about.
CO-CHAIRMAN GREEN expressed concern that getting caught up in the
economics of this issue may eventually become a quagmire. He said
there is a feeling that, on a well-by-well basis, we are giving
away the farm to try and prove up the billions of barrels of heavy
crude oil that are still available. Rather than leaving this
provision open it may be better to put a floor in and say, okay,
the state will get something for every barrel that is produced.
Number 1096
REPRESENTATIVE DAVIES felt that industry can make its pitch to the
legislature in terms of the urgency of getting a decision made.
That is part of the calculation that we as representatives of the
people of Alaska will make, and we are perfectly capable of coming
to the conclusion that it is urgent to get the decision made, one
way or the other. If we see that that is a large factor in whether
this decision gets made favorably to develop the heavy oil in the
North Slope, we will make the process move along. We have the
capacity to do that.
Number 1151
REPRESENTATIVE DAVIES said he understands the chairman's concern
about uncertainty, but felt that if that was a true concern, the
legislature can respond to that.
Number 1201
CO-CHAIRMAN GREEN said it is important to understand that in a much
more favorable province, the state passed legislation in the large
block leasing program and nobody came forward. He said we then
went to HB 207 last year and, again, nobody has come forward.
CO-CHAIRMAN GREEN emphasized that this legislation is the third
attempt and if this bill were passed, there is an activity that
would go forward. What I think we need is some proof that there is
a way to produce or keep alive the field testing of theory and lab.
If we leave this in a state of flux, it will, like the other two
incentive bills, languish, may die, and it may be a while before
anybody comes forward to try and do something in the field on heavy
oil production.
Number 1267
C0-CHAIRMAN GREEN talked about the limited amount of reserves of 25
- 40 billion barrels. He said that is a drop in the bucket compared
to Canada and that is not even in the same room as the bucket with
Venezuela. If the state does not continue the current activity
which we have already been shown, then there is no program. He
stated that if we leave that to die, we are doing a tremendous
disservice to the people of the state because then we leave this 40
billion barrels of oil unfield tested in our harsh conditions and
that would be travesty.
Number 1318
REPRESENTATIVE OGAN said he opposed Representative Davies amendment
for several reasons. We have a track record of two other companies
that have tried and failed to develop this oil. Five years from
now is when we are going to need significant additional revenues.
Oil and resource development is certainly a major portion to offset
this decline and more oil in the pipeline during that time will
enhance the revenues of the existing oil that is being pumped
because as production goes down, transportation costs go up and
those transportation costs come out of the state's royalty.
Number 1395
REPRESENTATIVE DAVIES said the urgency is there, but it is in the
interest of the people of Alaska for us to look more closely at the
economics than we have.
Number 1400
CO-CHAIRMAN GREEN asked for a roll call vote. Representatives
Davies and Nicholia voted in favor of the amendment.
Representatives Austerman, Kott, Green, Ogan and Williams voted
against the amendment. The amendment failed.
Number 1449
REPRESENTATIVE OGAN moved that CSHB 325 move from the House
Resources Committee with individual recommendations and attached
fiscal note. There was an objection so a roll call vote was taken.
Representatives Austerman, Kott, Ogan, Williams and Green voted in
favor of moving the bill. Representatives Davies and Nicholia
voted against moving the bill. So CSHB 325 moved from committee.
CO-CHAIRMAN GREEN said there was time to take testimony on HB 313.
HB 313 - BIG GAME TAGS FOR WOLVES
Number 1481
REPRESENTATIVE OGAN said HB 313 was introduced as a management tool
to enable the Department of Fish and Game and the Board of Game to
manage predators in a way that would be acceptable to all parties.
REPRESENTATIVE OGAN said the bill lowers the price of a wolf tag
for a nonresident from $175.00 to $10.00 and for a nonresident
alien from $250.00 to $15.00. He said HB 313 will increase the
incidental take of wolves, it will allow the Board of Game to
manage the resource by opening and closing the seasons and it is a
practical way to deal with the problem.
Number 1577
REPRESENTATIVE PETE KOTT asked if the effective date was still
valid.
REPRESENTATIVE OGAN moved that the effective date be January 1,
1997.
Number 1607
REPRESENTATIVE IRENE NICHOLIA asked for the fiscal note.
Number 1637
CO-CHAIRMAN WILLIAMS recalled that SB 81, intensive game
management, passed from committee with a $75.0 fiscal note. He
said HB 313 has a $42.5 fiscal note and he does not understand
where the committee is headed with this bill.
Number 1660
REPRESENTATIVE OGAN said there had been a tremendous amount of
money spent on failed management attempts in the past. He felt HB
313 provides a cost effective management tool. There is another
bill that deals with wolf management that has a higher fiscal note
and it is prudent to pass this one as well and see which one the
public and the legislature feel will be most appropriate.
Number 1711
REPRESENTATIVE NICHOLIA said she wanted to hear from the Department
of Fish and Game before the committee took action on the bill.
Number 1742
REPRESENTATIVE DAVIES said his understanding was that the committee
was only going to hear HB 325 at today's meeting. He said he would
also like to hear from the Department of Fish and Game.
REPRESENTATIVE AUSTERMAN said he also wanted to hear from the
Department of Fish and Game how this bill interacts with the other
wolf management legislation.
Number 1800
REPRESENTATIVE OGAN said he had no objection to holding the bill.
ADJOURNMENT
There being no further business to come before the House Resources
Committee, Chairman Green adjourned the meeting at 10:08 a.m.
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