Legislature(1993 - 1994)
01/18/1994 03:10 PM Senate O&G
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
SENATE SPECIAL COMMITTEE ON OIL & GAS
January 18, 1994
3:10 P.M.
MEMBERS PRESENT
Senator Loren Leman, Chairman
Senator Rick Halford
Senator Bert Sharp
Senator Judith Salo
Senator Al Adams
MEMBERS ABSENT
None
COMMITTEE CALENDAR
CS FOR SENATE BILL NO. 150(FIN) am
"An Act relating to the exploration and production of oil and
gas and related hydrocarbons, to oil and gas exploration
licenses and to oil and gas leases in certain areas of the
state, and to the proof of financial responsibility required
for the operation of facilities for the production of crude
oil and associated hydrocarbons and facilities for exploration
for oil and gas and related hydrocarbons; and extending the
period in which a sale on the five-year oil and gas lease sale
schedule may be delayed; and providing for an effective date."
(This bill is being held in the Senate Secretary's Office.
The Committee intends to prepare an amendment and amend the
bill on the floor of the Senate.)
PREVIOUS ACTION
SB 150 - See Oil & Gas minutes dated 3/16/93, 3/23/93, 4/1/93,
4/8/93, and 4/13/93.
WITNESS REGISTER
Ken Boyd, Deputy Director
Division of Oil and Gas
Department of Natural Resources
P.O. Box 107034
Anchorage, Ak. 99510-0734
POSITION STATEMENT: Commented on SB 150.
Tom Lohman
P.O. Box 69
Barrow, Ak. 99723
POSITION STATEMENT: Commented on SB 150.
Cliff Burglin
P.O. Box 131
Fairbanks, Ak. 99707
POSITION STATEMENT: Opposed SB 150.
George Findling, Manager
Government and Public Relations
Arco
134 N. Franklin
Juneau, Alaska 99801
POSITION STATEMENT: Commented on SB 150.
ACTION NARRATIVE
TAPE 94-1, SIDE A
Number 001
SENATOR LEMAN called the Special Committee on Oil and Gas
meeting to order at 3:10 p.m. and said that this would be a
work session on SB 150 (OIL & GAS EXPLORATION LICENSES/LEASES)
which was being held in the Senate Secretary's pending file.
KEN BOYD, Deputy Director, Division of Oil and Gas, briefed
the committee on proposed changes which had been agreed upon
during the interim. He said he would refer to the compromise
document as the October 25th Draft.
Two important points he made are that exploration licensing
is not a replacement for the five-year oil and gas leasing
program. The reason they added the exploration program is
that it is a means to dispose of some lands in basins that
people weren't coming to the table with under the five-year
program.
Since the five-year program works very well in certain areas
of the North Slope and Cook Inlet, they have excluded those
areas from exploration licensing.
Number 118
MR. BOYD showed the Committee on a map which specific areas
were excluded - North of the Umiat Baseline and areas that are
coming up for lease under the five-year leasing schedule. He
said this would apply to any off-shore areas as well. Other
lands excluded are in a portion of the Cook Inlet area.
CHAIRMAN LEMAN asked if it was the intent to exclude that
portion of the coastal plain above the Umiat Base Line as
indicated on the map. MR. BOYD said they wanted to keep the
foothills open, because of their underexplored nature, but
wanted to keep off the Colville Delta. It was their intent
to cover it from side to side.
MR. BOYD said they left out "insufficient or undocumented
geophysical information" because it might confuse the clear
boundaries the state had indicated.
SENATOR ADAMS asked if this legislation was after that type
of land to be explored? MR. BOYD answered yes, but the
October 25 Draft by geographic definition excludes lands for
which information is already known.
Number 254
MR. BOYD said the original bill contained no relinquishment
provision. They added one because when a company selects any
area for licensing, it is very unlikely to pick the boundaries
of an oil field. As they move through the exploration phase
of their licensed area, certain areas would be determined by
them to not be desirable. The state determined they should
be able to relicense that land or give someone else the
opportunity to have it.
In the October 25 Draft, the company has to do 25% of the work
commitment in the first 4 years or lose its license. If 50%
of the work is accomplished in the first 4 years, there is no
relinquishment. But half of the money is put into the ground
in the first 4 years. If the work is something in between,
relinquishment is followed by 25% and 10% of the remaining
acreage each year thereafter. The maximum relinquishment is
50%.
Number 326
Bonding was another top issue, MR. BOYD said. In the original
bill, bonding was for the total commitment and the explorer
forfeited anything not accomplished. In committee they
decided on an annual bond based on the year's work commitment.
The bond formula takes the amount of the commitment - for
example $50 million in a 10-year license minutes the amount
of work accomplished, zero for first year, and divide the
number of years into that sum and the bond for the first year
is $5 million. If $5 million worth of work is done in the
first year, subtract that from the $50 million and divide that
by the number of years left -9- which is $5 million for the
next year, etc.
MR. BOYD said the bond formula is important and fair. It
gives the smaller companies an opportunity to play - not to
necessarily compete on an equal basis with the largest
companies in the world. If you don't have responsibility
through bonding, the bidding won't be right, because you could
just bid any large number and win.
MR. BOYD said that all companies agreed to a sealed bid.
Number 419
SENATOR ADAMS noted that he would like to see debate on the
bonding issue so that it is clearly understood.
MR. BOYD pointed out that they wanted to make sure that
overhead was not included as one of the allowable expenses.
Number 482
On acreage chargeability he said there was a lot of discussion
on the 3 by 3 mile squares, but the companies all agreed this
was the best size. The October 25 Draft says that licenses
are not less than 20,000 nor more than 500,000 acres, because
there was a bit of fear that people would misuse the program.
He said that the parcels had to be big enough to do a best
interests finding. He was afraid the Commissioner would be
inundated with small requests that he would have to deny.
Number 527
SENATOR SALO asked if the $3 per acre annual rental rate was
a deal. MR. BOYD answered that they didn't make much money
from rent. What they want to do is get people out exploring
new land and making discoveries.
TAPE 94-1, SIDE B
Number 582
SENATOR LEMAN thanked Mr. Boyd for his presentation and said
that was what he intended for this work session. He asked if
there were questions or comments.
SENATOR ADAMS said his concern was with the language on page
2, lines 23 - 24. He also commented that he preferred the
October 25th Draft.
SENATOR HALFORD suggested that the Committee draft an
amendment to SB 150 to be offered on the floor of the Senate.
Number 515
GEORGE FINDLING, ARCO, supported the October 25 Draft as a
strong frontier licensing bill. He pointed out that it helped
create an even playing field among the bidders. The bonding
formulation strikes a balance that's appropriate among a
variety of interests and provides equal financial footing -
a "level playing field" because it provides solid protection
for the state's interest. Leases are achieved only after the
entire work commitment is complete which minimizes the chance
of speculation. The bonding and relinquishment together
provide incentives to get the work done early and
expeditiously. The bonding allows the licensee the maximum
flexibility to pursue the work program that makes sense to
them. The licensing supplements dovetail into the proven
state leasing system which provides the licensee with a fair
amount of certainty as to how the process is going to work
after the license is completed. The winning bid in any
competition that's sealed is likely to be based upon the
objective standards of total amount bid.
Number 470
TOM LOHMAN, Barrow, asked how this program worked with the
coastal zone management program and how would the licenses be
subject to coastal management review.
MR. BOYD answered that everything available under Title 38 has
the same terms and conditions. All the public processes under
the 5 year program are available under exploration licensing.
MR. CLIFF BURGLIN, Fairbanks, said this bill should never see
the light of day. He said this bill ties up all the state's
best potential oil and gas lands. The companies that like the
bill are laying off thousands of people and taking their money
overseas. He said the bonding was too high. He said Alaska
has goofy regulations.
Number 353
SENATOR LEMAN thanked everyone for their comments and said the
Committee would prepare an amendment. He adjourned the
meeting at 4:18 p.m.
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