Legislature(2025 - 2026)SENATE FINANCE 532
04/28/2025 01:30 PM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Office of Management and Budget: Budget Amendments | |
| SB176 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 176 | TELECONFERENCED | |
SENATE FINANCE COMMITTEE
April 28, 2025
1:33 p.m.
1:33:41 PM
CALL TO ORDER
Co-Chair Hoffman called the Senate Finance Committee
meeting to order at 1:33 p.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Donny Olson, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Mike Cronk
Senator James Kaufman
Senator Jesse Kiehl
Senator Kelly Merrick
MEMBERS ABSENT
None
ALSO PRESENT
Lacey Sanders, Director, Office of Management and Budget;
John Crowther, Deputy Commissioner, Department of Natural
Resources; Ryan Fitzpatrick, Commercial Manager, Division
of Oil and Gas, Department of Natural Resources; Senator
Cathy Giessel.
PRESENT VIA TELECONFERENCE
Cori Mills, Deputy Attorney General, Department of Law,
Juneau; Matt Gill, Government Affairs Manager, Marathon
Petro, Anacortes, Washington.
SUMMARY
SB 176 APPROVE MARATHON PETRO ROYALTY OIL SALE
SB 176 was HEARD and HELD in committee for
further consideration.
OFFICE OF MANAGEMENT and BUDGET: BUDGET AMENDMENTS
^OFFICE OF MANAGEMENT and BUDGET: BUDGET AMENDMENTS
1:34:39 PM
LACEY SANDERS, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
(OMB) discussed the presentation, "State of Alaska; Office
of Management and Budget; FY2026 Governor Amended Budget;
Senate Finance Committee" (copy on file). She began with
slide 2, "FY2026 Updated Fiscal Summary."
Co-Chair Stedman wondered whether there had been a
consideration to balance the budget in 2026 with the
amendments.
Ms. Sanders replied that there were no significant
reductions from the governors proposed budget.
Senator Merrick wondered whether the governor was willing
to work with the legislature to meet the three-quarter vote
threshold to use the CBR.
Ms. Sanders replied that the governor was willing to work
with and have conversations with the legislature to
determine the outcome of the budget and the revenue sources
needed.
Co-Chair Hoffman wondered whether Ms. Sanders was the point
of communication to address the issue.
Ms. Sanders replied in the affirmative.
Co-Chair Hoffman wondered whether the conversations with
the House of Representatives minority caucus.
Ms. Sanders replied that there were frequent conversations.
1:40:33 PM
Co-Chair Hoffman stressed that addressing the deficit was
important to not have a government shutdown, and asked
about efforts to address the budget needs.
Ms. Sanders replied that there were several appropriation
bills.
Co-Chair Hoffman remarked that most items in the
supplemental budget were the governors items. He wanted to
know the latest dialogues with the House minority to
address FY 25s budget.
Ms. Sanders agreed to follow up.
Co-Chair Hoffman stressed that the FY 25 budget should have
been finalized by the current point in the session. He
stressed that he had not received any update from the
governor.
Ms. Sanders apologized, and agreed to make a better effort.
Co-Chair Stedman wanted to know the action plan if the
budget did not move forward.
Ms. Sanders replied that there was evaluation of each item
and how to address the needs of the state.
Co-Chair Hoffman stressed that the issue was about working
together in a timely manner to find a solution.
1:45:20 PM
Ms. Sanders pointed to slide 3, "Operating Governor Amend
Requests
Co-Chair Stedman wanted to know whether the amendments
addressed the FY 25 budget or the FY 26 budget.
Ms. Sanders replied that the amendments on slide 3
addressed FY 26.
Co-Chair Stedman wondered whether the money used for the
cash flow for the environmental requests required a
backfill of cash.
Ms. Sanders replied that there was borrowing from the
capital appropriations.
1:49:52 PM
Co-Chair Hoffman remarked that all contracts had been
received for the FY 26 budget.
Ms. Sanders addressed slide 4, "Operating Supplemental
Requests
Ms. Sanders looked at slide 5, "Capital Supplemental
Requests
Co-Chair Stedman asked whether the judgments and
settlements had been addressed in the presentation.
Ms. Sanders replied in the affirmative.
Co-Chair Stedman wanted to hear more detail of the
judgments and settlements related to foster care.
1:54:25 PM
CORI MILLS, DEPUTY ATTORNEY GENERAL, DEPARTMENT OF LAW,
JUNEAU (via teleconference), stated that the case was
resolved mostly in the states favor, so the payments would
remain the same. There was an additional notice
requirement.
Co-Chair Stedman requested a summary of the comments.
Ms. Mills agreed to provide that information.
1:56:10 PM
AT EASE
1:57:44 PM
RECONVENED
SENATE BILL NO. 176
"An Act approving and ratifying the sale of royalty
oil by the State of Alaska to Marathon Petroleum
Supply and Trading Company LLC; and providing for an
effective date."
1:58:32 PM
JOHN CROWTHER, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, (DNR) introduced himself. He introduced the
legislation.
RYAN FITZPATRICK, COMMERCIAL MANAGER, DIVISION OF OIL AND
GAS, DEPARTMENT OF NATURAL RESOURCES, discussed the
presentation, "Senate Bill 176: Approve Marathon, Petro
Royalty Oil Sale, Senate Finance Committee" (copy on file).
He began with slide 2, "What is "Royalty In-Kind?"
Oil and gas leases issued by the State reserve a
"royalty share" to the State a portion of production
that the State receives as owner of the resource.
The State has the option to take its royalty oil and
gas in-value (RIV) or in-kind (RIK).
• RIV: Lessees market the royalty oil or gas alongside
their own production; the State receives the proceeds
from the sale of its royalty oil, subject to fair
market value
• RIK: Lessees provide royalty oil or gas of sales
quality to the State; the State is responsible for
marketing its royalty oil or gas
Department of Natural Resources (DNR) has statutory
processes for receiving royalty:
• Alaska Statute (AS) 38.05.182 requires DNR to make
best interest findings for RIV and RIK determinations,
and requires the commissioner report annually to the
Legislature about these elections
• AS 38.05.183 guides DNR in the sales of RIK and
requires that contracts meet a number of statutory
criteria and, in certain cases, receive legislative
approval before being entered into
• AS 38.06 establishes the Alaska Royalty Oil and Gas
Development Advisory Board, which reviews
2:00:45 PM
Co-Chair Stedman wondered whether the department would look
at the royalty-in-value and royalty-in-kind and provide a
recommendation.
Mr. Crowther replied that there had been many discussions
about the frameworks for those different royalty contexts.
Co-Chair Stedman asked when those discussions would occur,
and whether there was a plan to educate the legislature.
Mr. Crowther replied that the Department of Natural
Resources (DNR) should be engaged at every point in the
project. He stated that at the point of agreement it would
be the time DNR would undertake decisions about the royalty
disposition. He felt that the analyses were already
underway.
Co-Chair Stedman stressed that he had not seen any modeling
from DNR on the issue.
2:05:31 PM
Mr. Fitzpatrick pointed to slide 3, "Royalty A Core Lease
Term
Mr. Fitzpatrick addressed slide 4, "Sources of North Slope
Royalty
Mr. Fitzpatrick looked at slide 5, "Royalty In-Kind
Contract History":
• The State has historically selected to receive
royalty oil both in-kind and in-value
• About 97 percent of the State's royalty oil in-kind
selections have been North Slope oil
• The amount of RIK oil that the State sells varies
and depends many factors:
• Alaska North Slope (ANS) oil production from state-
owned lands
• Royalty rates for State oil and gas leases
• State's selection of the fields from which to choose
RIK oil
• Quantity of crude oil sought by in-state refineries
or other potential buyers
• Competitiveness of ANS royalty oil versus other
sources of crude oil for instate refineries or other
potential buyers
Mr. Fitzpatrick highlighted slide 6, "Royalty In-Kind
Contract History":
• Almost all the nearly one billion barrels sold to
date have been sold via non-competitive sales
• Less than 5 percent has been sold via competitive
sales
• The large majority of RIK oil sold to date has been
to in-state entities, with a few historical cases
where RIK oil was sold for export outside of Alaska
2:09:31 PM
Mr. Fitzpatrick displayed slide 7, "Processes and
Legislative Approval":
RIK contract development and execution involves
several significant steps:
• DNR commissioner follows a statutory process to
negotiate a proposed sale; then DNR publishes a
proposed finding describing the terms and reasons for
the sale
• DNR must brief the Alaska Royalty Oil and Gas
Development Advisory Board (AS 38.06) on the proposed
sale and receive the Board's review and approval
• After receiving public comments on the proposed
findings, DNR publishes a final best interest finding
• AS 38.06.055 requires authorization by the
Legislature before a contract can be executed
There are limited exceptions to this process, such
contracts to relieve storage or market conditions with
a duration of one year or less, and contracts for
sales of 400 barrels per day or less. These exceptions
do not apply to the Marathon contract now under
consideration.
Co-Chair Stedman wondered whether the proposal was accepted
or rejected; or merely reviewed as a courtesy.
Mr. Crowther replied that the contract was submitted to the
legislature for approval.
Co-Chair Stedman surmised that there would be a similar
bill attached to a potential major gas line.
Mr. Crowther replied that DNR would follow all provisions
within current law.
Co-Chair Stedman requested a process.
Mr. Crowther agreed to provide that information.
Mr. Fitzpatrick looked at slide 8, "Royalty Board Review":
AS 38.06.050 requires the Alaska Royalty Oil and Gas
Development Advisory Board:
• To provide a written recommendation of the board on
the proposed sale, submitted to the
Legislature at the time a bill approving the proposed
sale is introduced, and
• To provide a report on the criteria used to evaluate
the proposed sale
Mr. Fitzpatrick discussed slide 9, "Royalty Board Review
Criteria":
Sec. 38.06.070. Criteria. (a) In the exercise of its
powers under AS 38.06.040(a) and 38.06.050 the board
shall consider
(1) the revenue needs and projected fiscal condition
of the state;
(2) the existence and extent of present and projected
local and regional needs for oil and gas products and
by-products, the effect of state or federal commodity
allocation requirements which might be applicable to
those products and by-products, and the priorities
among competing needs;
(3) the desirability of localized capital investment,
increased payroll, secondary development and other
possible effects of the sale, exchange, or other
disposition of oil and gas or both;
(4) the projected social impacts of the transaction;
(5) the projected additional costs and
responsibilities which could be imposed upon the state
and affected political subdivisions by development
related to the transaction;
(6) the existence of specific local or regional labor
or consumption markets or both which should be met by
the transaction;
(7) the projected positive and negative environmental
effects related to the transaction; and
(8) the projected effects of the proposed transaction
upon existing private commercial enterprise and
patterns of investments.
(b) When it is economically feasible and in the public
interest, the board may recommend to the commissioner
of natural resources, as a condition of the sale of
oil or gas obtained by the state as royalty, that
(1) the oil or gas be refined or processed in the
state;
(2) the purchaser be a refiner who supplies products
to the Alaska market with price or supply benefits to
state citizens; or
(3) the purchaser construct a processing or refining
facility in the state.
The board shall make a full report to the legislature
on each criterion specified in (a) or (b) of this
section for any disposition of royalty oil or gas that
requires legislative approval. The board's report
shall be submitted for legislative review at the time
a bill for legislative approval of a proposed
disposition of royalty oil or gas is introduced in the
legislature.
Mr. Fitzpatrick displayed slide 10, "Recent RIK Contracts
2:16:31 PM
Senator Kiehl wondered whether there were ten-year royalty-
in-kind contracts in the past.
Mr. Fitzpatrick replied that he did not believe that there
were previous similar agreements.
Senator Kiehl asked whether the board examined the issue.
Mr. Fitzpatrick replied that the board reviewed the initial
contract, but there was not a statutory requirement to
appear before the board for each renewal.
Mr. Fitzpatrick pointed to slide 11, "Competitive vs. Non-
Competitive Sales":
• AS 38.05.183 requires the sale of royalty oil be by
competitive bid, unless determined that the best
interest of the State does not require it or no
competition exists
• A non-competitive sale requires a written finding by
DNR; for the Marathon contract, a Final Best Interest
Finding was published on April 14, 2025
• How does DNR decide between a competitive and non-
competitive sale?
• DNR publishes a "Solicitation of Interest" letter
with the goal of gauging the interest of the market
• In this letter, DNR establishes its preferred method
of sale (i.e., competitive disposition) with non-
binding parameters for such sale
• Interested parties are invited to comment on their
willingness to buy RIK oil and their preferred terms
• DNR analyzes those responses and makes a written
determination of the method of sale that is in the
best interest of the State
When awarding a royalty sale the commissioner shall
consider:
• The cash value offered;
• The projected effects of the sale, exchange, or
other disposal on the economy of the state;
• The projected benefits of refining or processing the
oil or gas in the state;
• The ability of the prospective buyer to provide
refined products or by-products for distribution and
sale in the state with price or supply benefits to the
citizens of the state; and
• The criteria listed in AS 38.06.070(a) There have
been very limited competitive sales in the past:
• Competitive sales of RIK oil only occurred in 1981,
1985, and 1986
• Less than 5 percent of RIK oil (46 million barrels
of approximately one billion overall barrels) sold to
date has been via competitive sales
Mr. Fitzpatrick looked at slide 12, "Royalty-In-Kind In-
State Priority":
DNR is statutorily directed to give a priority to in-
state RIK sales
Sec. 38.05.183. Sale of royalty.
d) Oil or gas taken in kind by the state as its
royalty share or gas delivered to the state under AS
43.55.014(b) may not be sold or otherwise disposed of
for export from the state until the commissioner
determines that the oil or gas is surplus to the
present and projected intrastate domestic and
industrial needs.
2:20:07 PM
Mr. Fitzpatrick discussed slide 13, "Historical Premium for
RIK Sales
• 11 Alaska Administrative Code 03.026(b) states that
the RIK price should be at least equal to the RIV
price
• From 2008 - 2023 the average RIK price was $1.25/bbl
higher than that RIV price
• The State sold over 173 million barrels of royalty
oil during this period
• RIK sales proceeds were $12.99 billion
• The State made over $188 million in revenue compared
to taking the royalty barrels in-value
2:21:44 PM
Co-Chair Stedman asked whether the reason was because there
was savings to transportation costs on the waterways.
Mr. Fitzpatrick replied in the affirmative.
Co-Chair Stedman wondered whether there was an expectation
of a lower tariff bringing gas closer north.
Mr. Crowther replied that one element of the deduction was
the transportation cost.
Co-Chair Stedman recalled that there had been discussion on
the tariff and whether it could be the same whether the gas
was shipped to Fairbanks or Anchorage.
Mr. Crowther replied that the destination was meaningful to
the tariff.
2:25:42 PM
Co-Chair Stedman remarked that the question was whether
there could be a different way to set the tariff.
Mr. Crowther replied that there could be a different
structure, should those processes occur.
Mr. Fitzpatrick pointed to slide 14, "RIK Process
Overview
Mr. Fitzpatrick looked at slide 15, "Recent RIK Contract
Key Terms
Mr. Fitzpatrick displayed slide 16, "Why RIK?"
Mr. Fitzpatrick pointed to slide 17, "RIK Pricing Formula
2:34:41 PM
Mr. Fitzpatrick discussed slide 18, "Contract Terms for
Marathon Using DOR Location Differential":
• Difference between marine deduction and RIK
differential largely drives RIK premium over RIV
• New methodology allows for dynamic RIK differential
deduction over contract term
• DNR estimates $1.08/bbl RIK premium
• This would result in approximately $4.9 million
incremental revenue per year of the contract over RIV
if Marathon purchases an average of 12.5 thousand
barrels of oil per day (mbopd)
Mr. Fitzpatrick pointed to slide 19, "Maximum Benefit to
Alaskans":
As required by AS 38.05.183(e), the Marathon RIK
contract maximizes the benefits to the State:
• The sale results in royalty premiums to the State
compared to the average RIV values
• Incremental increase in State revenue by $4 to $6
million per year
• In-state refining supports Alaskan jobs
• Marathon provides 220 full-time positions at its
Nikiski refinery, over 60 contracted positions and 40
positions at Anchorage and North Pole terminals
• Producing refined products in Alaska reduces the
costs to Alaskans
• Fuel security is economic security
• Marathon's Kenai refinery produces 55,000 barrels of
refined product per day
• 30 percent is jet fuel supplied to Ted Stevens
Anchorage International Airport nearly half the
airport's demand
• 27 percent is gasoline, which is consumed in state
• 43 percent is a combination of liquid petroleum gas,
fuel oil, asphalt and other products
2:36:54 PM
Co-Chair Stedman wondered what would happen if the
legislature did not approve the contract.
Mr. Fitzpatrick replied that the contract would not be
executed by DNR, and there would likely be new contract
negotiation.
Co-Chair Stedman wondered about the timeframe for a
reevaluation.
Mr. Fitzpatrick responded that the contract negotiation
extension could be up to one year.
Senator Kiehl asked about who else was interested in the
public index.
Mr. Fitzpatrick replied that all of the departments and
agencies within the executive branch would examine the
index.
Senator Kiehl asked whether any entity in the industry
would examine the index.
Mr. Fitzpatrick replied in the affirmative.
Senator Kiehl wondered whether there were implications if
someone drove the number artificially high.
Mr. Fitzpatrick responded that everyone involved in the
contracts had an interest in ensuring the numbers within
the index were correct.
Mr. Crowther thanked the committee.
2:45:44 PM
Co-Chair Hoffman OPENED public testimony.
2:46:07 PM
MATT GILL, GOVERNMENT AFFAIRS MANAGER, MARATHON PETRO,
ANACORTES, WASHINGTON (via teleconference), spoke in
support of the bill.
Co-Chair Hoffman CLOSED public testimony.
Co-Chair Stedman addressed the fiscal note.
SB 176 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
2:50:47 PM
The meeting was adjourned at 2:50 p.m.