Legislature(2021 - 2022)BARNES 124
03/17/2021 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| Board of Game | |
| HB81 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| += | HB 81 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 17, 2021
1:01 p.m.
MEMBERS PRESENT
Representative Josiah Patkotak, Chair
Representative Grier Hopkins, Vice Chair
Representative Zack Fields
Representative Calvin Schrage
Representative Sara Hannan
Representative George Rauscher
Representative Mike Cronk
Representative Ronald Gillham
Representative Tom McKay
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
CONFIRMATION HEARING(S):
Board of Game
Stanley Hoffman - Bethel
Jacob Fletcher - Talkeetna
Lynn Keogh Jr. - Wasilla
Jerry Burnett - Juneau
- CONFIRMATION(S) ADVANCED
HOUSE BILL NO. 81
"An Act authorizing the commissioner of natural resources to
modify a net profit share lease."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 81
SHORT TITLE: OIL/GAS LEASE:DNR MODIFY NET PROFIT SHARE
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/18/21 (H) READ THE FIRST TIME - REFERRALS
02/18/21 (H) RES, FIN
03/05/21 (H) RES AT 1:00 PM BARNES 124
03/05/21 (H) Heard & Held
03/05/21 (H) MINUTE(RES)
03/10/21 (H) RES AT 1:00 PM BARNES 124
03/10/21 (H) Heard & Held
03/10/21 (H) MINUTE(RES)
03/17/21 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
STANLEY HOFFMAN, Appointee
Board of Game
Bethel, Alaska
POSITION STATEMENT: Spoke as an appointee to the Board of Game.
JACOB FLETCHER, Appointee
Board of Game
Talkeetna, Alaska
POSITION STATEMENT: Spoke as an appointee to the Board of Game.
LYNN KEOGH JR., Appointee
Board of Game
Wasilla, Alaska
POSITION STATEMENT: Spoke as an appointee to the Board of Game.
JERRY BURNETT, Appointee
Board of Game
Juneau, Alaska
POSITION STATEMENT: Spoke as an appointee to the Board of Game.
MARK RICHARDS, Executive Director
Resident Hunters of Alaska
Fairbanks, Alaska
POSITION STATEMENT: Testified in opposition to Mr. Fletcher and
Mr. Keogh, appointees to the Board of Game.
SAM ROHRER, President
Alaska Professional Hunters Association
Kodiak, Alaska
POSITION STATEMENT: Testified in favor of all appointees to the
Board of Game.
NICOLE SCHMITT
Anchorage, Alaska
POSITION STATEMENT: Testified in favor of Mr. Hoffman and in
opposition to Mr. Keogh, appointees to the Board of Game.
KATHRYN LESSARD
Chugiak, Alaska
POSITION STATEMENT: Testified in favor of Mr. Keogh, appointee
to the Board of Game.
CALEB MARTIN, Executive Director
Alaska Outdoor Council
Anchorage, Alaska
POSITION STATEMENT: Testified in favor of all appointees to the
Board of Game.
EMILY NAUMAN, Deputy Director
Legislative Legal Services
Legislative Affairs Agency
Juneau, Alaska
POSITION STATEMENT: Provided information and answered questions
during the hearing on HB 81.
JHONNY MEZA, Commercial Section Manager
Division of Oil and Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Provided information and answered questions
during the hearing on HB 81.
RYAN FITZPATRICK, Commercial Analyst
Division of Oil and Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Provided information and answered questions
during the hearing on HB 81.
ACTION NARRATIVE
1:01:59 PM
CHAIR JOSIAH PATKOTAK called the House Resources Standing
Committee meeting to order at 1:01 p.m. Representatives McKay,
Cronk, Hopkins, Rauscher, Hannan, Gillham, Schrage, and Patkotak
were present at the call to order. Representative Fields
arrived as the meeting was in progress.
^CONFIRMATION HEARING(S):
CONFIRMATION HEARING(S):
^BOARD OF GAME
BOARD OF GAME
1:03:02 PM
CHAIR PATKOTAK announced that the first order of business would
be a Confirmation Hearing on Governor's Appointees to the Board
of Game.
[Biographical information on all appointees available in the
committee packet.]
1:03:16 PM
STANLEY HOFFMAN, Appointee, Board of Game, Introduced himself as
a lifelong Alaskan, in the Kuskokwim River area. He said that
his family relies on subsistence hunting and fishing, and that
in the past he has been a registered guide as well as a
commercial fisherman. He noted that he has served on the board
since 2008.
1:04:30 PM
REPRESENTATIVE RAUSCHER cited the Constitution of the State of
Alaska, Article 8, Section 3, which read as follows:
SECTION 3. Common Use. Wherever occurring in their
natural state, fish, wildlife, and waters are reserved
to the people for common use.
REPRESENTATIVE RAUSCHER then cited Article 8, Section 4, which
read as follows:
SECTION 4. Sustained Yield. Fish, forests, wildlife,
grasslands, and all other replenishable resources
belonging to the State shall be utilized, developed,
and maintained on the sustained yield principle,
subject to preferences among beneficial uses.
REPRESENTATIVE RAUSCHER asked Mr. Hoffman what these
constitutional clauses mean to him.
1:06:47 PM
MR. HOFFMAN replied that he strongly believes in the common use
of wildlife, and that his job is to help manage resources to
allow everyone to get the maximum benefit from them.
REPRESENTATIVE RAUSCHER asked how Mr. Hoffman views allowing a
species to be harvested in a general hunt versus a permit-draw
hunt.
MR. HOFFMAN noted that general hunts are open to Alaska
residents, and said that he believes those are the most
beneficial to Alaskans. He said that while many Alaskan
participate in permit draw hunts, those types of hunts are
available to people from outside the state, and that if
nonresidents don't show up to hunt it changes the way game is
managed.
REPRESENTATIVE RAUSCHER noted the food supply disruptions of the
past year and asked about Mr. Hoffman's view regarding the
importance of harvesting wild food supply, and whether he would
do anything differently as a board member.
MR. HOFFMAN responded that the food supply disruptions of the
past year have changed his perspective on availability and
harvest. He said he believes that with the extra opportunity
for harvest, the board did well despite there not being a set
plan.
1:10:46 PM
REPRESENTATIVE CRONK asked Mr. Hoffman how important advisory
committees are to the Board of Game.
MR. HOFFMAN replied that the advisory committees are vital to
the system, and that the Board of Game relies on what the
committees have to say.
REPRESENTATIVE CRONK concurred and thanked Mr. Hoffman.
1:12:10 PM
CHAIR PATKOTAK introduced the next witness and reminded him to
comment on Representative Rauscher's standard questions on the
constitutional clauses regarding the use of resources, the
lottery draw hunt and general permit hunt, and how the COVID-19
pandemic correlates with food insecurity.
1:12:55 PM
JACOB FLETCHER, Appointee, Board of Game, said that he and his
wife own a small business guiding for big game, primarily on
Kodiak Island, and in the summer months he operates jet boats.
He said that he has worked as a packer, assistant guide and
registered guide for over 20 years and is very familiar with
regulations and how they're implemented in the field. He stated
that he would work hard to be a conscientious and effective
member of the board. In describing his thoughts on sustainable
yield, Mr. Fletcher said, "All of the game in this state belongs
to all of the residents of the state," and where that really
comes into play is in the advisory committees; the views of the
local advisory committees, he said, are imperative. He noted
that a general season hunt is in an area with good game
populations and has restrictions on the hunt; draw hunts,
however, are in areas where there is more intensive management
and the amount of game taken out of that area is more strictly
controlled. On the topic of the disruption of the food supply
over the past year, he remarked that it's important that
Alaskans be able to feed themselves.
1:17:29 PM
REPRESENTATIVE HANNAN asked Mr. Fletcher to clarify his dates of
service on the Board of Game.
MR. FLETCHER said he was appointed in the regular cycle, but his
confirmation was disrupted due to the COVID-19 pandemic.
1:18:19 PM
REPRESENTATIVE HOPKINS noted the importance of balance on the
board and said that if all the confirmations go through, four of
the seven members of the board would come from a guiding
background. He asked Mr. Fletcher if he believes that having a
Board of Game with the majority of seats held by members with a
guiding background would represent the interests of all
Alaskans.
MR. FLETCHER responded that, first and foremost, he's a resident
hunter who takes his family hunting; as such, he's familiar with
the importance of putting food on the table. He said that he
recognizes the concern that there may be too many guides on the
board but said that he's the only active, registered guide who
would be sitting on the board.
REPRESENTATIVE HOPKINS followed up to ask if Mr. Fletcher
believes it would be in the best interest of all Alaskans to
have members who prioritize having a balanced board on the Board
of Game.
MR. FLETCHER replied that there's no mandate for the board to
have a specific composition, but that he believes Alaskan guides
are an important part of the economy and are good stewards of
the resources.
REPRESENTATIVE HOPKINS asked how important Mr. Fletcher believes
it is to have a balanced board when it comes to the backgrounds
of the members.
MR. FLETCHER responded that he believes it's important to have
people from different backgrounds represented on the board, and
that he would take input from the local advisory committees as
the basis of his decision making. He also said that he would
have an open mind and use his best judgement, and that he agrees
with the concept that the board should represent all of Alaska.
1:23:26 PM
REPRESENTATIVE GILLHAM referred to Representative Rauscher's
questions about the constitutional clauses in the context of a
community hunt that allows 25 animals to be taken, and said that
it gives a certain group of people priority over the animals of
that area. He asked Mr. Fletcher what his thoughts are on that.
MR. FLETCHER responded that he doesn't have enough information
about a community hunt to make an informed decision, but that
there is a precedent for subsistence or "traditional" use.
REPRESENTATIVE GILLHAM clarified that the community hunt is not
subsistence, rather it is a case of one member of a community
being able to take 25 animals, and that this happens a week
before the general hunt. He said that to him this equates to
priority access for a certain group of people.
MR. FLETCHER replied that with this information, it seems that
Representative Gillham's thoughts are valid.
1:25:58 PM
LYNN KEOGH JR., Appointee, Board of Game, said that he and his
wife have operated a fishing charter business on the Kenai
Peninsula for over 30 years; he is a commercial fisherman, full-
time trapper, and registered hunting guide. He said that he
guides one hunt per year as supplemental income and to pay for
his hunting license. He said that he served two terms on the
Anchorage Fish and Game Advisory Committee and believes in
resident opportunity and sustained yield. He noted that he has
no wildlife violations but did have a motor violation in 2007.
Regarding the general versus permit hunt, he said that general
hunt means that there's enough game surplus to allow everyone to
access the resource, whereas permit hunting means that the
resource is more limited. He said that he believes the permit
hunt is more beneficial to Alaskans. He referred to
Representative Gillham's questions regarding the community
harvest hunt and said that he does not believe that it fulfilled
its original purpose and that, through conversations with area
advisory committees, he has reason to believe that they are
disapproving of the administration of the community harvest
hunt.
1:28:24 PM
REPRESENTATIVE HANNAN noted the opposition to having a board
composed primarily of registered guides, and she asked Mr. Keogh
whether he keeps up his guide license for a reason other than
guiding as a profession.
MR. KEOGH said that he worked hard to get that qualification,
that it's benefitted him in allowing him to travel to see other
hunting areas. He said that his interest lies with protecting
resident opportunity, and that he's surprised by the opposition
to him based solely on his status as a licensed guide.
REPRESENTATIVE HANNAN asked about the allegations that Mr. Keogh
has had "numerous fish and wildlife violations" and asked him to
affirm that he has no criminal fish or wildlife violations.
MR. KEOGH replied, "I have no fish and wildlife violations, nor
have I ever."
1:31:00 PM
REPRESENTATIVE SCHRAGE asked whether Mr. Keogh had ever
previously come before the legislature as an appointee.
MR. KEOGH replied that he had come before the legislature in
2011, and said that due to politics "it didn't go well."
REPRESENTATIVE SCHRAGE noted that Mr. Keogh said that he was
surprised at the opposition to his appointment, even though he
had previously been denied.
MR. KEOGH clarified that he was surprised there was opposition
from a resident hunting group based simply on the fact that he
is a registered guide.
1:32:12 PM
REPRESENTATIVE HOPKINS noted Mr. Keogh's assertion that he has a
strong record of supporting resident hunters and asked for
examples or evidence of that support.
MR. KEOGH said that in 2011 he served one cycle on the Board of
Game, during which there was a proposal to give exclusive access
to a moose population to one individual guide. He said that the
motion passed, however he opposed it because he didn't believe
it's the board's job to guarantee to one commercial guide
exclusive access to a public resource. He then said that more
recently, Resident Hunters of Alaska had submitted a petition to
the board to create a policy of not changing the original intent
of a proposal; the board had guaranteed non-residents 25 percent
of the hunting permits.
REPRESENTATIVE HOPKINS noted that there are 1,230 licensed
guides in Alaska, 25 percent of which are non-residents, and
100,000 resident hunters in Alaska. He asked Mr. Keogh if he
believes that having four of the seven board members coming from
a guiding background represents the interests of Alaskans,
hunters, and the constitution.
MR. KEOGH replied that he does believe it because he's a
subsistence hunter.
REPRESENTATIVE HOPKINS asked how important Mr. Keogh believes it
is to have balance on the board.
MR. KEOGH answered that "based on the statute 16.05.221 I meet
most if not all of the criteria," but he said he doesn't have
any control of the overall makeup of the board.
REPRESENTATIVE HOPKINS said that he would ask again how
important Mr. Keogh sees balance in representation and interest
on the board, considering the controversial and complex nature
of the issues.
MR. KEOGH asked Representative Hopkins how he defines "balance."
REPRESENTATIVE HOPKINS replied that there are resident hunters,
guided interests, non-consumptive user interests, and
subsistence interests, and he asked Mr. Keogh if he believes it
is important to have all those interests equally represented on
the board.
MR. KEOGH said that he believes it's important and that he
believes he meets each of those criteria.
1:37:31 PM
REPRESENTATIVE FIELDS said that he has heard from constituents
who have concerns about Mr. Keogh's appointment; one reported
that in July 2004 there was a listing in Court View that he had
a commercial fish permitting stipulation related to conducting
commercial activity without a proper permit. He asked Mr. Keogh
to explain what that is.
MR. KEOGH responded that he has no idea what that is, and said
that the only violation he's had on the Kenai River was a motor
violation in 2007.
REPRESENTATIVE FIELDS follow-up with another case from Court
View, listing Mr. Keogh "in violation of a commercial guide."
MR. KEOGH responded, "No."
REPRESENTATIVE FIELDS cited Alaska Statute (AS) 16.05.221, which
read: "The governor shall appoint each member on the basis of
interest in public affairs, good judgment, knowledge, and
ability in the field of action of the board, and with a view to
providing diversity of interest and points of view in the
membership." He referred to a Facebook post Mr. Keogh shared in
2017 about Alaska's state of corruption, that said "attorneys,
judges, and others in Alaska's judicial system are manufacturing
fraudulent judgments." Representative Fields asked Mr. Keogh if
he believes Alaska's judicial system is corrupt.
MR. KEOGH said that he doesn't know why he shared the Facebook
post and is surprised that he did, that he doesn't believe that
Alaska's judicial system is corrupt, and that he shared that
post to see what people's thoughts were.
1:40:45 PM
REPRESENTATIVE CRONK said that his main concern is managing game
for maximum yield and sustenance. He asked if Mr. Keogh
believes that, if game is managed properly, all of the user
groups are covered.
MR. KEOGH replied that he agrees 100 percent and said that "if
you pay attention to the resource first, everything else will
follow along."
1:41:29 PM
JERRY BURNETT, Appointee, Board of Game, spoke as an appointee
to the Board of Game and said that Governor Dunleavy appointed
him to the Board of Game in 2019, and that he has now been
reappointed for a second term, and is also currently serving as
the Board of Game member on the Big Game Commercial Services
Board. He said that he has lived in Juneau since 1981 and is
active in the Alaska Outdoor Council and a sportsman
organization and has been a board member and president of both
organizations. He said that he retired from the State of Alaska
in 2017, where he was the Deputy Commissioner for the Department
of Revenue, and that he now has the time to serve on the Board
of Game. Regarding the constitutional basis, he indicated that
he believes that sustained yield requires putting the resource
first, and that the intensive management statute requires the
board to focus on maximum production of certain species, while
maintaining sustained yield of the predator species. As far as
common use, he said, there are several different uses of fish
and game resources besides consumption, and each use is
beneficial. Realistically, he said, there are areas in the
state with small populations of game but large populations of
people, so a permit system is necessary to limit who can hunt
beyond subsistence; in areas where a larger harvest is possible,
it becomes necessary to spread the hunters out over a longer
time period. He stated that he is not very familiar with the
community hunt that Representative Gillham referenced, but the
way he described it, it seems that the community hunt would
verge on unconstitutionality due to the preference based on a
person's location; he indicated that he would need to research
that issue. Regarding the food security question, he said that
the past year has affected many decisions for people who don't
have easy access to food, and has had the effect of keeping non-
residents from hunting in Alaska and keeping hunters in urban
areas from going to rural areas to harvest game.
1:47:55 PM
REPRESENTATIVE FIELDS noted that the issue of nonmotorized
versus motorized access hadn't been discussed.
1:48:22 PM
CHAIR PATKOTAK opened public testimony on the appointees to the
Board of Game.
1:49:00 PM
MARK RICHARDS, Executive Director, Resident Hunters of Alaska,
described Resident Hunters of Alaska as a hunting conservation
organization with 3,000 members that advocates for sustainable
wildlife management policies geared toward prioritizing resident
hunting. He said, "We strongly oppose the addition of two more
registered guides, Jack Fletcher and Lynn Keogh, to the Board of
Game." He said that this opposition is not because of their
qualifications or reputation, but because they are both
registered big game guides. He said that if two new guides are
appointed, the board will be controlled by guides, which, as he
said in his letter to the committee [included in the committee
packet], represent less than 1 percent of Alaska resident
hunters. He noted that the organization has historically
supported select guides, in fact, it supports Mr. Hoffman and
supported Al Barrette in the last cycle; however, the
appointment of two more guides would create a clear imbalance
favoring the commercial hunting industry over the interest of
Alaska residents who are not guides. He said that he is
surprised at the testimony from Mr. Keogh and Mr. Fletcher and
said that each had disqualified themselves from serving due to
the statute requiring a diversity of interest on the Board of
Game, which would not be fulfilled by having registered guides
as majority members.
1:51:49 PM
SAM ROHRER, President, Alaska Professional Hunters Association,
said that the Alaska Professional Hunters Association (APHA)
supports all four appointees to the Board of Game, and believes
they will bring unique viewpoints and experiences, as they are
accessible, willing to listen to all sides, and committed to
making the best decisions possible. Mr. Rohrer noted that if
these candidates were appointed there would be only two
registered guides on the board, Mr. Keogh and Mr. Fletcher, not
four. He said that of the other two members, one hasn't held a
guide license since 2017, and the other holds only an assistant
license, not a registered guide license. He said that he
believes the appointees would be able to consider different
viewpoints in their decision-making process.
1:54:05 PM
NICOLE SCHMITT said that she supports Mr. Hoffman's
confirmation, as she has observed his sincerity and thoughtful
decision-making during meetings in the past. She then noted her
concerns about Mr. Keogh's confirmation and said that she was
surprised at his assertation that he does not remember his
repeated citations while operating on the Kenai River. She said
that serving on this board is a huge responsibility and that
it's important for Board of Game members to uphold the rules
they're tasked with enforcing. She noted that there are many
qualified people engaged in the Board of Game process, and that
Mr. Keogh's appointment is controversial.
1:56:31 PM
REPRESENTATIVE FIELDS referred to the previously mentioned July
27, 2004, Court View listing regarding conducting commercial
activity without a proper permit and asked Ms. Schmitt if she's
familiar with the details. He also mentioned the June 17, 1995,
violation.
CHAIR PATKOTAK advised that committee members should keep in
mind that Ms. Schmitt is not testifying in a legal capacity.
MS. SCHMITT said that she pulled up some of the documents
available on Court View and noted that she had sent them to a
couple of the representatives; she also said that she pulled up
the record of the 2012 confirmation hearing, when these
questions were originally asked and during which Mr. Keogh
responded to inquiries about violations. She noted that all of
this information is publicly available.
1:58:57 PM
REPRESENTATIVE CRONK said he doesn't feel that it's proper that
the committee is asking people, during their public testimony,
about evidence against an appointee.
CHAIR PATKOTAK expressed his agreement.
1:59:38 PM
KATHRYN LESSARD testified in favor of Mr. Keogh and read a
letter she had sent, dated February 18, 2021, as follows:
Please support Lynn Keogh for the Board of Game. Lynn
does have a lifetime experience of hunting, fishing
and trapping in Alaska. Lynn has worked tirelessly to
resolve trapping conflicts. He's dedicated, ... fair
minded, and he's very committed to serving.
2:01:32 PM
CALEB MARTIN, Executive Director, Alaska Outdoor Council,
testified in favor of all appointees to the Alaska Board of
Game. He said that the Alaska Outdoor Council believes that all
of them have the experience to serve.
2:02:11 PM
CHAIR PATKOTAK, after ascertaining that no one else wished to
testify, closed public testimony.
2:02:33 PM
REPRESENTATIVE HANNAN asked to have Mr. Keogh back on the line
to address the comments made in public testimony.
2:03:11 PM
MR. KEOGH, in response to Representative Hannan, said that he
had received citations but was not convicted of them. He said
that he has looked on Court View and "can't find anything in
regard to those dates."
2:04:02 PM
CHAIR PATKOTAK noted the difference between allegations and
public records.
2:04:16 PM
REPRESENTATIVE HANNAN asked again for Mr. Keogh to clarify the
citations, and asked if they were violations of any nature other
than equipment and speed regulations.
2:04:55 PM
MR. KEOGH responded that the only violation he had was the motor
violation, but the fact that he was operating under a commercial
permit made it a larger violation.
2:06:15 PM
CHAIR PATKOTAK used the analogy of having a headlight out as a
commercial driver's license holder versus a regular driver's
license; it's a much more serious violation when one holds a
commercial license.
2:06:42 PM
REPRESENTATIVE HOPKINS asked Mr. Keogh if the citation qualified
as a misdemeanor under state law.
MR. KEOGH responded, "No."
2:07:11 PM
REPRESENTATIVE RAUSCHER said that he's concerned about the
ability of the advisory committees and overall public to be
involved in the board meeting process, considering the nature of
the virtual board meetings.
2:08:22 PM
REPRESENTATIVE SCHRAGE asked, "Was the boat with the oversized
motor operated on the river at any point?"
MR. KEOGH responded that it was being operated on the Kenai
River, and the citation in question was the July 27 incident
that has been under discussion.
REPRESENTATIVE SCHRAGE opined that Mr. Keogh had the opportunity
to notice the difference in motors, and that it should have been
clear that it was a violation.
2:09:34 PM
REPRESENTATIVE CRONK said that certain people had a certain size
motor that had been "tuned down" to a different level. He said
that he personally happens to have a guide license but is an
advocate for subsistence hunting, and asked hypothetically
whether simply having that license would prevent him from
serving on the Board of Game.
2:10:43 PM
CHAIR PATKOTAK told Mr. Keogh that he received letters from
constituents and congratulated him on the Trapper of the Year
award.
2:12:20 PM
CHAIR PATKOTAK announced that the confirmations of Stanley
Hoffman, Jacob Fletcher, Lynn Keogh, and Jerry Burnett,
appointees to the Board of Game, would be advanced to the joint
session for consideration. He reminded the committee that
signing the reports regarding appointments to boards and
commissions in no way reflects individual members' approval or
disapproval of the appointees, and the nominations are merely
forwarded to the full legislature for confirmation or rejection.
2:13:05 PM
The committee took an at-ease from 2:13 p.m. to 2:15 p.m.
HB 81-OIL/GAS LEASE:DNR MODIFY NET PROFIT SHARE
2:15:36 PM
CHAIR PATKOTAK announced that the final order of business would
be HOUSE BILL NO. 81, "An Act authorizing the commissioner of
natural resources to modify a net profit share lease." [Before
the committee was CSHB 81(RES).]
CHAIR PATKOTAK noted that Legislative Legal Services requested
the committee substitute to conform the bill to legislative
drafting style.
2:16:14 PM
REPRESENTATIVE HOPKINS moved to adopt the proposed committee
substitute (CS) for HB 81, Version 32-GH1706\B, Nauman, 3/16/21,
as the working document. There being no objections, Version B
was before the committee.
2:16:33 PM
CHAIR PATKOTAK moved to adopt Amendment 1 to Version B, labeled
32-GH1706\B.2, Nauman, 3/16/21, which read as follows:
Page 2, lines 17 - 18:
Delete "for which additional capital expenditures
would make future production no longer"
Insert "from which, without additional capital
expenditures, future production would no longer be"
2:16:51 PM
REPRESENTATIVE HOPKINS objected for purposes of discussion.
2:17:15 PM
EMILY NAUMAN, Deputy Director, Legislative Legal Services,
Legislative Affairs Agency, explained that in the process of
creating the committee substitute she discovered an error in
drafting the bill, which is corrected by Amendment 1. In
response to Representative Fields, she clarified that in the
original bill, the wording did not conform with the intent of
the bill, so the amendment clarifies [in Version B] that
"without additional capital expenditures, future production
would no longer be" economically feasible.
REPRESENTATIVE FIELDS asked whether, with the new language,
there is a concern that a company might ask for more favorable
lease treatment in lieu of capital expenditures. He noted that
in general it would be preferable to have more investment rather
than changing the lease terms.
MS. NAUMAN replied that the purpose of this amendment was to
clarify what she believed to be the original intent of the bill.
REPRESENTATIVE FIELDS said that perhaps the Department of
Natural Resources (DNR) could address its process for ensuring
additional investment rather than more favorable treatment from
the state for an existing production area.
2:22:36 PM
JHONNY MEZA, Commercial Section Manager, Division of Oil and
Gas, Department of Natural Resources, clarified that it is not
the intent of DNR to provide assistance in the form of a
modified net profit share lease in cases where capital
expenditures would otherwise be required to ensure future
economic feasibility.
2:24:01 PM
REPRESENTATIVE FIELDS asked whether there exist statutes or
regulations that provide the DNR with direction to take that
stance.
MR. MEZA responded, "The statute mandates that the DNR
commissioner maximizes the value of the oil and gas resources to
the people of Alaska, and ... any modification of royalty or net
profit share that could be contemplated would follow that goal."
REPRESENTATIVE FIELDS asked whether it would be better to delete
"additional capital expenditures" [from page 2, line 17, of
Version B], so that the bill doesn't unintentionally
disincentivize capital investment.
2:25:20 PM
REPRESENTATIVE SCHRAGE offered his belief the Amendment 1 would
do the opposite of what the proposed legislation intended by
allowing the modification of a net profit share agreement.
2:26:26 PM
MR. MEZA replied as follows:
Our intent is to encourage that this proposed capital
expenditures be incurred by the lessee such that
future production can come online. When they perform
their economic evaluation, they may find that such an
endeavor is not profitable enough to motivate them to
sanction that investment. If by modifying the royalty
rates or the net profit share, sanctioning that
investment is considered as a profitable endeavor by
the lessee, which includes their capital expenditure,
then that's ... the goal that we're trying to
accomplish. So, in other sense, in a given project
we're not trying to modify the amount of capital
expenditures that a lessee may be contemplating by
modifying the royalty or net profit share, with the
proposed capital expenditures, we're trying to
encourage such future production to become economic.
2:27:35 PM
REPRESENTATIVE SCHRAGE said:
So, what I just heard is that ... if there is analysis
done that shows additional capital expenditure would
make future production economically feasible, they
would be denied the adjustment to the net profit
sharing agreement. And so I do believe the text in
the bill, as currently written in version B, is
correct.
RPRESENTATIVE SCHRAGE then noted that it could be put into
simpler language, but that he believes "it matches the intent of
the bill.
2:28:16 PM
CHAIR PATKOTAK noted that this is DNR's bill, and the intention
of the department was to give the DNR commissioner the authority
to modify net profit share lease agreements.
2:28:55 PM
RYAN FITZPATRICK, Commercial Analyst, Division of Oil and Gas,
Department of Natural Resources, said that Legislative Legal
Services brought the matter of the language to the attention of
the department, and that both agencies agree that the language
in the amendment achieves the intent of the bill. He referred
to [subparagraph] (D), on page 2 of Version B, and said that
with the new language inserted it would read: "to prolong the
economic life of an oil or gas field or pool for which
additional capital expenditures would make future production no
longer economically feasible". He said that this language is to
make it clear that in order to be eligible for a royalty or net
profit share modification, the lessee would have to make
additional capital expenditures. He reemphasized that the
royalty or net profit share modification would hinge on the
lessee making the capital expenditure.
2:30:59 PM
REPRESENTATIVE FIELDS directed his remarks to Ms. Nauman and
said that the plain language of [HB 81, Version B] seems to give
DNR the ability to adjust lease terms in the absence of capital
expenditures. He asked whether there's a way to clarify in
stronger terms that capital expenditures and the economic
benefits that accompany them are preferable, and that adjusting
the lease terms is a "last resort" decision.
2:31:45 PM
MS. NAUMAN responded that she agrees that the language wouldn't
necessarily require a lessee to make capital expenditures;
instead, it would require the department to make a finding that
without additional capital expenditures, future production
wouldn't be economically feasible.
2:32:32 PM
REPRESENTATIVE FIELDS said that he understands that the purpose
of the proposed legislation is to prolong production and that he
believes the committee should pursue language making it clear
that changing the lease terms is a last-resort decision.
2:32:58 PM
The committee took an at-ease from 2:33 p.m. to 2:35 p.m.
2:35:30 PM
REPRESENTATIVE SCHRAGE said that there are two scenarios in
which the net profit share lease would be adjusted. One is a
case in which there is no production on the lease, so it would
be preferable for the company to make the investment in capital;
if an investment would not make economic sense for the company,
then the lease agreement could be adjusted to incentivize
production. The second scenario, he said, would be a case in
which there is production occurring on a lease but it's toward
the end of its useful life, and that life could be extended by
adjusting the net profit share agreement to incentivize further
capital investment to extend the life of the lease. In either
case, he said, there would exist a capital investment. He said
that he would like to explore clarifying the language to refine
the amendment.
MR. MEZA said that Representative Schrage's remarks accurately
described the conditions for royalty under the statute. He
summed up the possible scenarios as A) for new production, and
B) existing production which may be near abandonment and need
capital expenditures. He then added two additional scenarios:
C) to restore production that had already been shuttered, and a
newly-proposed scenario D) for incremental production, which
looks similar to scenario B but differs in that the operation
doesn't necessarily require additional capital expenditures for
future production.
2:38:44 PM
REPRESENTATIVE FIELDS said that he would prefer to get Ms.
Nauman's input clarifying that this bill is for application to
cases in which the adjustment of lease terms is necessary for
production to continue, as opposed to allowing lessees to
abdicate their responsibility to make capital investments in
order to keep producing.
2:39:20 PM
REPRESENTATIVE SCHRAGE asked whether it is the intent of the DNR
to be able to adjust a net profit share agreement without any
capital investment taking place, simply to extend the duration
of production on that field.
MR. MEZA said that there is one existing scenario for royalty
modification, scenario B as previously described, which
contemplates prolonging the economic life of an oil or gas field
or pool where continuation of production could, by necessity,
require capital expenditure; in scenario D, however, it is not a
requirement.
2:41:01 PM
REPRESENTATIVE MCKAY said that it costs money just to produce
the field without any additional capital investment; he said
that there is one scenario in which the lessee may shutter the
well unless more profit is possible in the future. He said
that's the condition in scenario B.
2:42:08 PM
REPRESENTATIVE HOPKINS noted that Mr. Meza had described the
condition of being "not profitable enough" and said that Mr.
Meza said that the net profit share lease rate could be lowered
if the field or pool was "not profitable enough." He asked
whether the intent of this bill is to make a pool or field more
profitable, or simply to make it profitable at all.
MR. MEZA answered that the goal for the lease modifications is
to increase the likelihood that a project will be economically
advantageous and to motivate the investment decision by the
lessee. He said DNR cannot guarantee profitability of a
project, and that this bill is to increase the likelihood that
an investment in capital expenditure will take place.
REPRESENTATIVE HOPKINS asked whether a change in the net profit
share rate could be made with no guarantee that capital
investments would be made in the future.
MR. MEZA answered that is correct with respect to all of the
cases with petitions for modification. He noted an earlier
presentation in which he described a 2014 decision made to
modify the royalty agreement; the project did not come to
fruition despite granting the royalty modification.
2:44:26 PM
CHAIR PATKOTAK acknowledged that there is opportunity for DNR
and Legislative Legal Services to work with the offices to
clarify Amendment 1. [Amendment 1 was tabled, with the motion
to adopt left pending.]
2:46:13 PM
The committee took a brief at-ease.
2:47:03 PM
REPRESENTATIVE HANNAN moved to adopt Amendment 2 to Version B,
labeled 32-GH1706\B.1, Nauman, 3/15/21, which read as follows:
Page 2, line 18, following "feasible;":
Insert "a royalty modification may not be made
under this subparagraph;"
Page 2, line 30:
Delete "or (1)(D)"
Page 4, line 5:
Delete "or net profit share"
Following "(1)(A)":
Insert "of this subsection or a net profit share
reduction under (1)(A)"
2:47:07 PM
[REPRESENTATIVE RAUSCHER objected for discussion purposes.]
2:47:13 PM
REPRESENTATIVE HANNAN said that the Amendment 2 focuses on
[subparagraph] (D) and that Version B, as presented, focuses
only on net profit share agreements, of which there are 26;
royalty agreements, of which there are thousands, can already be
modified in accordance with the DNR commissioner. If this bill
passes with subparagraph (D) as currently written, she said,
both net profit share and royalty agreements could be modified
based on capital expenditures. She believes, she said, that
investment to keep up production is standard in the industry,
and that capital investment is necessary as a field ages. She
said that the goal of the bill is to get the 26 existing net
profit share agreements, most of which have not been in
production, into production; therefore, Amendment 2 says that a
producer must incur capital investment in order to modify the
terms of a net profit share lease. She said that she wants to
make subparagraph (D) exclusive to the net profit share
agreements.
2:51:12 PM
CHAIR PATKOTAK noted that based on the presentation in the
committee meetings the focus of the proposed legislation is on
changing the commissioner's authority regarding the net profit
share leases, not the royalty leases.
MR. MEZA confirmed that it is correct that there are 26 net
profit sharing leases on the North Slope, spread out among many
productive oil and gas units. Many of the leases themselves are
still producing, which is the reason for including subparagraph
(D) - allowing modifications for leases on sites in order to
prolong the economic life in the absence of capital
expenditures, which would make future production economically
unfeasible. They are including this scenario, he said,
inclusive of royalty-only leases of net profit share leases.
2:53:05 PM
REPRESENTATIVE HOPKINS noted the title of the bill, "An Act
authorizing the commissioner of natural resources to modify a
net profit share lease." He asked whether the intent of this
bill is to allow a royalty-only lease to change into a net
profit share lease, or to change only the net profit share rate
on a net profit share lease.
2:53:37 PM
MR. MEZA said that the intent is for the DNR commissioner to
have the authority to modify either the royalty rate or net
profit share rate; the current statute, he said, already allows
the commissioner to modify royalty rates for any type of lease,
but this bill is proposing giving the commissioner the authority
to modify the net profit share rate. He said that the newly-
proposed scenario under subparagraph (D) is for a scenario that
would apply to both net profit share modification and royalty
modification, as would the three existing scenarios A, B, and C.
[These scenarios were previously described in a PowerPoint
presentation given by Mr. Meza during the House Resources
Standing Committee meeting on March 5, 2021, and they paraphrase
the provisions under subparagraphs (A), (B), and (C), and the
proposed subparagraph (D).]
REPRESENTATIVE HOPKINS said that Mr. Meza's notes clarified the
intent.
2:55:10 PM
CHAIR PATKOTAK said that as he understands it, in order to
change the net profit sharing lease's royalty agreement, the
lessee would have to meet the requirements in scenarios A, B,
and C, and he asked if that is correct.
MR. MEZA replied that, yes, that is correct; the scenarios A, B,
C, and the newly-proposed scenario D are the scenarios for
eligibility. A lessee applying for modification of royalty or
net profit share would be required to demonstrate that the
project would meet the criteria A through C, as well as the
newly-proposed scenario D, and provide the technical and
financial data that would demonstrate future production in order
to modify either the royalty and/or net profit share rate.
2:56:21 PM
REPRESENTATIVE HOPKINS asked whether it is the intent of DNR to
allow a change to the rate on a royalty-only lease, adhering to
subparagraph (D); he offered his understanding that doing so
would be outside the scope of the proposed legislation based on
its title.
MR. MEZA said that under subparagraph (D), it is possible to
have a modification to a royalty-only lease and that the intent
of DNR is to include leases that only have a royalty component.
The reason for this, he stated, is that the fields or pools
which are currently producing but may be nearing the end of
their economic life may need a modification of net profit share
or royalty rates in order to maximize production, as well as
revenue to the state.
2:58:31 PM
CHAIR PATKOTAK said he understands that if there exists a
royalty-only lease that is ending its life, then perhaps there
should be a modification to the royalty agreement and inclusion
of a net profit share lease, adding to the total number of net
profit share leases overall, depending on the situation.
[The motion to adopt Amendment 2 was left pending.]
CHAIR PATKOTAK announced that HB 81 would be held over.
3:00:16 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:00 p.m.