Legislature(1993 - 1994)
04/08/1993 05:17 PM Senate O&G
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SENATE SPECIAL COMMITTEE ON OIL & GAS
April 8, 1993
5:17 p.m.
MEMBERS PRESENT
Senator Loren Leman, Chairman
Senator Rick Halford
Senator Bert Sharp
Senator Judith Salo
Senator Al Adams
MEMBERS ABSENT
Senator Rick Halford
Senator Judith Salo
Senator Al Adams
COMMITTEE CALENDAR
SENATE BILL NO. 150
"An Act providing for oil and gas exploration licenses, and
oil and gas leases, in certain areas of the state; and
providing for an effective date."
PREVIOUS ACTION
SB 150 - See Oil & Gas minutes dated 3/16/93, 3/23/93, and
4/1/93.
WITNESS REGISTER
Annette Kreitzer, Legislative Aide
% Senator Leman
State Capitol
Juneau, Alaska 99811-1182
POSITION STATEMENT: Commented on SB 150.
Dave Lappi
Lapp Research, Inc.
4900 Sportsman Dr.
Anchorage, Alaska 99502
POSITION STATEMENT: Commented on SB 150.
Jim Eason, Director
Division of Oil and Gas
Department of Natural Resources
P.O. Box 107034
Anchorage, Alaska 99510-7005
POSITION STATEMENT: Supported SB 150.
George Findling
ARCO Alaska
Anchorage, Alaska 99510
POSITION STATEMENT: Commented on SB 150.
Kevin Tabler
Union Oil Company
P.O. Box 196247
Anchorage, Alaska 99519
POSITION STATEMENT: Commented on SB 150.
Bob Gardner
Enser Consulting and Engineering
4640 Business Park Blvd.
Anchorage, Alaska 99503
POSITION STATEMENT: Commented on SB 150.
Pete Nelson, Land Manager
Alaska Region
Texaco
2550 Denali Street
Anchorage, Alaska 99503
POSITION STATEMENT: Commented on SB 150.
ACTION NARRATIVE
TAPE 93-14, SIDE A
Number 001
SENATOR LEMAN called the Special Committee on Oil and Gas
meeting to order at 5:17 p.m. and announced SB 150 OIL & GAS
EXPLORATION LICENSES/LEASES to be up for consideration.
ANNETTE KREITZER, Legislative Aide for Senator Leman,
explained the proposed CS which clarified the geographic
boundaries, dealt with the bonding and the competitive
bidding issues.
She said in the CS acreage is not chargeable to AS 38.05.140
(c) when it's in the license state, but if it's converted to
a lease, the leases are subject to the 1 million aggregate
acreage limitation and leases are subject to the 5,760 acre
limitation per lease. There is no limitation on the numbers
of leases. All of the leases are subject to the provisions
of AS 38.05.180 j - m, o - u, and x - z.
Number 194
SENATOR LEMAN and JIM EASON, Director, Division of Oil and
Gas, discussed the bonding formula.
Number 301
DAVE LAPPI, Lapp Research, Inc., supported limiting the
amount of land available for licensing. DNR might be able
to give away 100 licenses by eliminating the performance
bonding requirement. He thought the state should take that
risk rather than limit oil and gas licensing to those
companies that are happy to work under performance bonding.
He said most companies would want to channel their
exploration dollars into developing a potential cash flow
and it would be in the state's best interest to encourage
that to happen instead of penalizing those companies for not
performing work on the less perspective acreage.
MR. LAPPI explained that large companies are less efficient
than small companies. They have a larger exploration
budget. Small companies are able to perform work that is
more cost effective. Bidding on a work program basis would
go a lot further toward leveling the playing field than
letting everyone bid on a dollar amount basis.
He was glad to see the acreage chargeability in the bill.
It is worthwhile having if companies are not being required
to perform work on their acreage. However, he thought the
possibility of one company acquiring acreage by using a
subsidiary should be addressed in the bill, too.
MR. LAPPI said that many countries require data collected on
an exploration license be available to the public two years
after the data was acquired or on relinquishment of the
acreage. This benefits the entire exploration community.
He said that most of the operators currently operating in
Alaska are operating overseas, too, and are happy to operate
in those countries that require them to go public with their
data after two years.
Number 424
MR. EASON said it is hard to make a determination of what is
in the best interest of the state with a competitive bidding
process, because there are so many variables.
GEORGE FINDLING, Manager of Public Relations for ARCO
Alaska, opposed CSSB 150. He said the amendments went too
far in diluting the bill's purpose to accelerate
exploration. ARCO supported exempting lands that are
approaching lease sales. For them, oral bidding makes sense
because the public interest finding will require that
competitive information be revealed. An oral auction will
level the playing field in that case. They do not fear
going head to head with their competitors. It would only
get more exploration work done which would be in the state's
best interest. Relinquishment is so contrary to exploration
licensing that the entire section needs to be removed. He
asked the committee to reconsider the amendments so ARCO
could, then, support the bill.
Number 538
KEVIN TABLER, Union Oil Company, California, said he is
confused about the total amount of bonding required by the
formula. It appears to be equal to, or for more than, the
work commitment.
On page 5, line 3 of the CS, MR. TABLER said the acreage
relinquishment requirement needs to be completely taken out.
BOB GARDNER, Regional Program Manager, Enser Consulting and
Engineering, said he assumed the intent of the bill was to
stimulate exploration. Bonds in the amounts being discussed
are simply not available, no matter who you are. A bond is,
essentially, a penalty on the front end of the program. The
penalty should be on the end of the program in the form of
cancelation of the license or some major acreage reduction
if the work commitment is not done.
Under the present structure exploring under an exploration
license is actually going to be more expensive than
exploring under the current competitive leasing program.
Number 582
MR. EASON asked the committee to remember they are trying to
compare whether the cost of exploring under licensing can be
substituted for leasing. With competitive leasing you have
to factor in bonuses which you can't recover if you don't
find an oil field.
Regarding relinquishments, they are not unique. They did a
survey of 142 countries that provide exploration licensing,
and the vast majority of those don't require any sort of
relinquishment provision, but 13 of them do. It is
relatively flexible and relatively minor.
On the issue of oral auction as compared to sealed
competitive bidding, MR. EASON commented that he agreed the
state's interests in financial terms would be enhanced by
use of the outcry auction. There were other considerations,
however, and the committee should balance those positions.
Number 548
SENATOR LEMAN asked him to comment on not needing
relinquishment and bonding. MR. EASON said that bonding and
relinquishment are compatible. However, selecting either of
them at the wrong level create tremendous disincentives in
this legislation.
On bonding MR. EASON said he had listened to testimony from
a representative of a bonding company in Anchorage who said
that bonding is relatively harder to get today than it was
in the past, but the bonding can take many different forms.
Longer term bonds are harder to secure regardless of your
financial status.
SENATOR SHARP asked if it was right that no company could
propose a licensing proposition except in areas designated
specifically by the Commissioner. MR. EASON explained that
was not right, the intent is that the Commissioner, at any
time, may initiate the process by calling for proposals on a
specific area. Also individuals interested in a license may
initiate the process on their own behalf without the
Commissioner having taken any action. There is only one
period per year for prospective licensees to propose the
license.
Number 476
SENATOR SHARP asked if there was any limit to the total of
active licenses one company could have. MR. EASON said
there wasn't.
MR. LAPPI said all the alternatives to bonding that have
been discussed are more expensive than obtaining bonds and
the practice in overseas countries, especially New Zealand,
Australia, and New Guinea, on a competitive bid program was
to award licenses on work program commitments, not dollar
amounts. The system seemed to work in those countries.
Number 456
PETE NELSON, Land Manager for the Alaska Region of Texaco,
supported SB 150 without the replacement language submitted
today, because it was good for the state and fair to the
industry.
SENATOR LEMAN recessed the meeting at 6:17, called it back
to order at 6:25 and then adjourned the meeting.
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