Legislature(1993 - 1994)

03/01/1994 04:10 PM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
              SENATE SPECIAL COMMITTEE ON OIL & GAS                            
                          March 1, 1994                                        
                           4:10 P.M.                                           
  MEMBERS PRESENT                                                              
 Senator Loren Leman, Chairman                                                 
 Senator Bert Sharp                                                            
 Senator Judith Salo                                                           
  MEMBERS ABSENT                                                               
 Senator Rick Halford                                                          
 Senator Al Adams                                                              
  COMMITTEE CALENDAR                                                           
 Confirmation Hearing for Tuckerman Babcock to the Alaska Oil                  
 and Gas Conservation Commission                                               
 HOUSE BILL NO. 384                                                            
 "An Act eliminating the temporary character of alternative                    
 procedures available to persons who must show evidence of                     
 financial responsibility before conducting noncrude oil                       
 operations; and providing for an effective date."                             
 SENATE BILL NO. 169                                                           
 "An Act authorizing an extension of the exemption from the                    
 levy and collection of the tax imposed on certain oil and gas                 
 pipeline transportation property during the period of pipeline                
 construction, and amending the definition of `construction                    
 commencement date' applicable to that tax; and providing for                  
 an effective date."                                                           
  PREVIOUS ACTION                                                              
 HB 384 - No previous action to record.                                        
 SB 169 - See Community & Regional Affairs minutes dated                       
  WITNESS REGISTER                                                             
 Tuckerman Babcock                                                             
 Anchorage, Ak.                                                                
  POSITION STATEMENT:   Confirmation Hearing.                                  
 Larry LaBolle                                                                 
 c/o Representative Foster                                                     
 State Capitol                                                                 
 Juneau, Ak. 99801-1182                                                        
  POSITION STATEMENT:   Commented on HB 384.                                   
 Ray Gillespie                                                                 
 Petro Marine, Crowley Marine, Delta Western                                   
 9478 Riverbend Court                                                          
 Juneau, Ak. 99801                                                             
  POSITION STATEMENT:   Supported HB 384.                                      
 Clyde Benson                                                                  
 Oil and Gas Property Tax Assessor                                             
 Department of Revenue                                                         
 550 W 7th Ave.                                                                
 Anchorage, Ak. 99501                                                          
  POSITION STATEMENT:   Commented on SB 169.                                   
 Doug Griffin, City Manager                                                    
 Valdez, Ak.                                                                   
  POSITION STATEMENT:   Opposed SB 169                                         
 Donna Fisher                                                                  
 Valdez City Council                                                           
 Valdez, Ak.                                                                   
  POSITION STATEMENT:   Opposed SB 169.                                        
  ACTION NARRATIVE                                                             
  TAPE 94-4, SIDE A                                                            
 Number 001                                                                    
 SENATOR LEMAN called the Special Committee on Oil and Gas                     
 meeting to order at 4:10 p.m. and announced they would first                  
 have the confirmation hearing for Tuckerman Babcock to the                    
 Alaska Oil and Gas Conservation Commission.                                   
 MR. BABCOCK said the Commission's responsibilities relate to                  
 the prevention of waste and protection of correlative rights,                 
 improving ultimate recovery, and protection of fresh water                    
 He said he brings to the Commission a general government                      
 background.  He said his role is to be a judge rather than a                  
 technician with the primary qualifications of fairness and                    
 SENATOR LEMAN asked if he thought the non-technical member                    
 position was important to the Commission.  MR. BABCOCK thought                
 it was important to have one member whose background was with                 
 public fairness, in general, and government.                                  
 Number 163                                                                    
 SENATOR LEMAN asked how the role of the public member impacted                
 decisions like gas flaring.  MR. BABCOCK responded that the                   
 oil companies themselves have definitions for the categories                  
 they use.  The Department of Revenue and the Oil and Gas                      
 Conservation Commission have statutes and regulations.  He                    
 would try to bring a uniform approach that wouldn't increase                  
 paper work and that everyone would understand.  With the gas                  
 flaring issue the Commission was mainly concerned with waste                  
 and noted they were not dealing with a large percentage of                    
 SENATOR LEMAN apologized for interrupting Mr. Babcock's                       
 testimony and said the Committee needed to take action on a                   
 bill while there was a quorum present.  He announced  HB 384                  
 (FINANCIAL REQMTS: NONCRUDE OIL OPERATIONS) to be up for                      
 REPRESENTATIVE RICHARD FOSTER, sponsor, said his Aide, Mr.                    
 LaBolle, would explain HB 384.                                                
 LARRY LABOLLE, Aide for Representative Foster said HB 384                     
 eliminated the sunset clause in current statute that requires                 
 direct action insurance for non-crude operators.  He said DEC                 
 did support this concept.                                                     
 RAY GILLESPIE, Petro Marine, Crowley Marine, Delta Western,                   
 testified that this legislation is essential to continue their                
 non-crude operations in Alaska.  They unanimously support the                 
 Number 284                                                                    
 SENATOR SALO moved to pass HB 384 from Committee with                         
 individual recommendations.  There were no objections and it                  
 was so ordered.                                                               
 SENATOR LEMAN announced they would continue now with Mr.                      
 Babcock's testimony.                                                          
 SENATOR SALO asked if he was familiar with the key oil and gas                
 legislation and if he had thoughts regarding it.                              
 MR. BABCOCK said the Chairman was their official spokesman and                
 declined to comment on any legislation.  He said, however,                    
 their concern was with reservoir management.  He hoped the                    
 legislature would fund their budget to cover hiring an                        
 engineer who was an expert in co-mingling issues and the rest                 
 of their funding for the CIP who could analyze the impact of                  
 gas sales from Prudhoe Bay and surrounding fields which was                   
 only partially funded last year.                                              
 MR. BABCOCK asked a philosophical question if they thought not                
 developing gas that was in the ground, because of federal or                  
 other agency constraints constituted "waste."  SENATOR LEMAN                  
 answered that he would consider it waste if they brought it                   
 to the surface, but couldn't utilize it.                                      
 MR. BABCOCK said the Oil and Gas Conservation tax is 4 mills                  
 per barrel.  It raises more money than the budget of the                      
 Commission by about $400,000 to $500,000.  He suggested the                   
 legislature consider appropriating the full amount of the tax                 
 to the Commission, but only authorizing that which they                       
 predict they will need so the rest of the money would be                      
 available for an emergency.  Now there is no leeway to                        
 investigate reservoir issues.                                                 
 SENATOR LEMAN thanked him for the suggestion and said the                     
 legislature would take up confirmations probably in April.                    
 SENATOR LEMAN announced  SB 169  (TAX EXEMPTION: CERTAIN                      
 PIPELINE PROPERTY) to be up for consideration.                                
 SENATOR DONLEY said SB 169 was an incentive to get oil and gas                
 pipelines started.  It makes sense to exempt oil and gas taxes                
 earlier as this bill does, because of the nature of the oil                   
 and gas property tax, he said.  When you start stockpiling                    
 materials to do the project, you immediately incur tax                        
 liability on that property which has to be financed, because                  
 there is no revenue stream.                                                   
 Number 459                                                                    
 CLYDE BENSON, State Oil and Gas Property Tax Assessor,                        
 explained the fiscal note.  Page 1 stated there is no revenue                 
 impact, since passage of the bill would not require them to                   
 do anything.  The second page deals with the amount of tax                    
 revenue lost.                                                                 
 SENATOR LEMAN noted that Senator Donley contended that the                    
 bill would encourage development which could conceivably                      
 offset the loss of revenue to the state.  MR. BENSON said that                
 might be the case, but they have no way of measuring it.                      
 SENATOR DONLEY explained that the guidelines for the                          
 Department to approve this exemption require the economic                     
 activity attributed to the earlier construction due to the                    
 approved exemption would have to be greater than the loss of                  
 revenue to the state for them to even consider granting it.                   
 DOUG GRIFFIN, City Manager for the City of Valdez and DONNA                   
 FISHER, member of the City Council, testified that the city                   
 of Valdez passed a resolution in opposition to SB 169.  MR.                   
 GRIFFIN explained that Valdez has been the beneficiary of an                  
 earlier pipeline and would be very supportive of a gas                        
 pipeline, but they are concerned with the impacts that would                  
 occur on municipal services during a construction phase and                   
 their inability, perhaps, to raise adequate revenues to                       
 provide necessary public safety and health facilities.  He                    
 suggested the state could forego its revenues, but not take                   
 on the power to exempt municipal ability to raise revenues.                   
 MS. FISHER concurred with Mr. Griffin's testimony.  She added                 
 that one thing they did experience during the pipeline days                   
 was the loss of revenue from people moving out.  She noted                    
 that other funding sources were being cut back, as well.                      
 SENATOR SALO asked if Valdez had a sales tax.  MS. FISHER said                
 it doesn't.                                                                   
 MR. GRIFFIN said they were concerned with the state mandating                 
 exemptions and not providing any kind of reimbursement.                       
 SENATOR DONLEY suggested that a sales tax would give them a                   
 more diverse economy.                                                         
 TAPE 94-4, SIDE B                                                             
 Number 585                                                                    
  SENATOR DONLEY explained that the system is really unfair to                 
 the state as it is now, because it doesn't get appropriate                    
 revenue for doing some of the functions it does in regulating                 
 the industry in their city and the City of Valdez is getting                  
 the money from the oil and gas property tax.                                  
 MR. GRIFFIN replied that argument would have a lot of merit                   
 if it didn't go back to the fact that Governor Sheffield                      
 entered into this agreement which provided that Valdez would                  
 loose its tax base faster without any input from the City of                  
 He compared their situation to other communities that also                    
 rely on one industry, like the fisheries industry.  They are                  
 not singled out or treated the same way as the oil and gas                    
 industry is handled in Valdez.                                                
 SENATOR LEMAN said they should be able to tax any additional                  
 property values resulting from increased population and                       
 Number 543                                                                    
 SENATOR DONLEY said he was not unsympathetic to their                         
 situation and it seems like there should be some middle ground                
 where they could allow for some local taxation, maybe at a                    
 reduced level.                                                                
 SENATOR LEMAN said they would look favorably upon something                   
 like that.   He said they would hold SB 169 in Committee and                  
 continue to work on it.  He then adjourned the meeting at 5:03                

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