Legislature(1993 - 1994)
03/23/1993 05:20 PM Senate O&G
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SENATE SPECIAL COMMITTEE ON OIL & GAS
March 23, 1993
5:20 p.m.
MEMBERS PRESENT
Senator Loren Leman, Chairman
Senator Bert Sharp
MEMBERS ABSENT
Senator Rick Halford
Senator Al Adams
Senator Judy Salo
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."
SENATE BILL NO. 151
"An Act providing for oil and gas exploration incentive
credits for certain activities on certain land in the state;
and providing for an effective date."
PREVIOUS ACTION
SB 150 - See Oil & Gas minutes dated 3/16/93.
SB 151 - See Oil & Gas minutes dated 3/16/93.
WITNESS REGISTER
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 and SB 151.
Hugh Doogan
359 Slater Street
Fairbanks, Alaska 99701
POSITION STATEMENT: Opposed SB 150 and SB 151.
Jerry Booth
CIRI
2525 C Street
Anchorage, Alaska 99503
POSITION STATEMENT: Supported SB 150.
Al Hastings, Director
External Affairs
CONOCO
3201 C Street, #200
Anchorage, Alaska 99503
POSITION STATEMENT: Supported SB 150.
David Lappi, President
Lapp Resources, Inc.
4900 Sportsman Dr.
Anchorage, Alaska 99502
POSITION STATEMENT: Supported SB 150 with certain
conditions.
Kevin Tabler, Land Manager
Union Oil Company
P.O. Box 196247
Anchorage, Alaska 99516
POSITION STATEMENT: Supported SB 150 with certain
conditions.
Pete Nelson, Land Manager
Texaco Oil
2550 Denali Street
Anchorage, Alaska 99503
POSITION STATEMENT: Supported SB 150 with certain
conditions.
Jim Davis, Senior Vice President
Exploration and Land
ARCO Alaska
9421 Springhill
Anchorage, Alaska 99507
POSITION STATEMENT: Supported SB 150.
Robert Erickson, Administrative Assistant
Teacher's Local 959
AFL-CIO
Fairbanks Plumbers and Pipefitters
P.O. Box 102092
Anchorage, Alaska 99510
POSITION STATEMENT: Support SB 150.
John Ringstad
BP Exploration, Inc.
P.O. Box 196612
Anchorage, Alaska 99509
POSITION STATEMENT: Opposed SB 150 as written.
Larry Smith
1520 Lakeshore Dr.
Homer, Alaska 99603
POSITION STATEMENT: Opposed SB 134.
ACTION NARRATIVE
TAPE 93-9, SIDE A
Number 001
SENATOR LEMAN called the Special Committee on Oil and Gas
meeting to order at 5:20 p.m. and announced SB 151 OIL & GAS
EXPLORATION INCENTIVE CREDITS to be up for consideration.
JIM EASON, Director, Division of Oil and Gas, said they have
awarded approximately $38 million in credits under the state
incentive program, AS 38.05.180, beginning in 1979.
HUGH DOOGAN, Fairbanks, opposed both SB 150 and SB 151,
because it gives the oil and gas industry complete control
of our resources. It does nothing for the backbone of the
oil industry which are the independent drillers.
SENATOR LEMAN closed the hearing on SB 151 and announced SB
150 OIL & GAS EXPLORATION LICENSES/LEASES to be up for
consideration.
Number 116
JERRY BOOTH, Cook Inlet Region (CIRI), said in light of the
changing economics of the oil and gas industry in Alaska and
the world, they think it is appropriate and advisable for
the legislature to consider new and innovative approaches to
oil and gas leasing and development. While SB 150 is a
departure from the traditional competitive leasing approach,
it is not unfamiliar to native corporations. It is designed
to supplement, not replace the state's current competitive
leasing program.
Number 219
AL HASTINGS, Director of External Affairs, CONOCO, supported
SB 150. He said the terms for licensing should be
consistent with the current leasing program. Areas subject
to large block licensing should exclude areas that are in
the 5 year leasing program and areas such as the North Slope
and Cook Inlet that are mature leasing areas. There should
be a cap on the acreage under license to any one licensee of
500,000 acres. He supported annual bonding for each year's
work commitment. Regulations should be developed to define
how competing proposals would be evaluated by DNR. Also, a
lease that has been converted from a license should be
treated no differently than any other lease issued by DNR.
Number 270
SENATOR LEMAN asked what the cost of a bond would be. MR.
HASTINGS guessed exploration licensing in frontier areas
would bring in tens of millions of dollars.
DAVID LAPPI, President, Lapp Resources, Inc., gained his
exploration experience in Australia. Alaska needs to adopt
exploration license legislation to ensure that its favorable
geology attracts its fair share of the international
exploration dollar, he said. To do this the exploration
license terms need to be at least as favorable as terms in
other countries that offer exploration licenses.
MR. LAPPI said he would like to see the actual work programs
bid while the seismic shots are taken and exploration well
footage is drilled - "to level the playing field" between
large and small companies. Work programs bid by companies
also should be tied to a time-line to encourage early
exploration and development. Since the current bill
doesn't require exploration to commence until the last year
of the license, he said that should be changed to an
annualized basis to encourage early work in the life of a
license. Companies not performing their work on an annual
basis without a valid overriding reason should lose the
license.
Another requirement they would like to see is for companies
who own exploration licenses to relinquish 25% of the
remaining licensed area every two years which would prevent
warehousing of large parcels of acreage.
MR. LAPPI said they would like to eliminate the oral outcry
auction. The performance bond should also be eliminated and
he supported offering licenses over the entire state
including Cook Inlet and the North Slope.
Number 354
KEVIN TABLER, Land Manager for Union Oil Company, said they
believe in the current competitive lease sale process and
they feel it is the best way to achieve evaluation of the
state's oil and gas resource potential. Exploration
licensing in areas like Cook Inlet is inappropriate and will
not lead to an earlier evaluation of the state's oil and gas
potential.
MR. TABLER said that specific areas should be described in
the bill and any one license should not exceed 500,000 acres
and should conform to existing leasing statutes and
regulations.
Number 422
SENATOR LEMAN asked if he would exclude all of the Cook
Inlet area and the North Slope from the frontier areas. MR.
TABLER said Cook Inlet already has an active competitive
lease sale program in place. Areas that have been actively
explored in the past should not be included.
SENATOR LEMAN asked why he would exclude areas that have
been subject to lease sales? MR. TABLER replied that the
exempt sales process provides for those lands to come up
under a competitive process.
Number 441
PETE NELSON, Land Manager, Texaco, said SB 150 presents an
interesting and workable concept to the license program
which will encourage accelerated exploration. She said the
intent should be reflected in the legislation by not
including mature areas in this program. A work commitment
performance bond should be posted for the amount of work
done each year. The Commissioner should adopt regulations
for evaluating competing proposals. Licenses converted to
leases should be subject to existing lease statutes.
Number 469
JIM DAVIS, Senior Vice President of Exploration and Land,
ARCO Alaska, supported SB 150, because it would invigorate
exploration for oil and gas in Alaska and it would make
Alaska more competitive internationally. The existing lease
process could be supplemented with licensing based on work
commitments, public disclosure, and competition. He said
the bill's main purpose is to shorten the time required to
explore. It gives a secure land position in return for a
bonded work commitment, it relies on market competition to
prevent abuse or giveaways, and provides protections to the
state by allowing the Commissioner to reject any proposal
and revert to the existing leasing program. He commented
that all the suggested changes he has heard for this bill
only dilute it.
Regarding the "mature area" issue, he commented that the
North Slope and Cook Inlet are producing areas, but they
haven't been even close to thoroughly explored. Licensing
should be available for both intellectual as well as
geographical frontiers. Cook Inlet, for example, is in its
second cycle of exploration. They just rethought this same
area. New sources of oil are needed on the North Slope to
keep TAPS running as long as possible to maximize the
economic efficiency of existing production. Exploration
licensing is especially applicable on the North Slope,
because there is a limited window of opportunity.
TAPE 93-9, SIDE B
Number 580
MR. DAVIS said the oral outcry auction is protection for the
person who submits the initial proposal which may be subject
to partial disclosure.
Some companies say they won't use licensing because they
have only limited funds available for Alaska. In essence
they are saying they want us to wait to explore until they
are prepared to reinvest in Alaska, because they believe
they have better foreign opportunities. This demonstrates
that Alaska is at a competitive disadvantage.
Number 558
SENATOR LEMAN asked how he felt about a distance requirement
to protect existing fields that are being developed. MR.
DAVIS said he didn't find that to be objectionable and he
suggested the distance be as short as possible.
SENATOR LEMAN asked him to comment on the cost of bonding.
MR. DAVIS said bonding is basically 10 cents on the dollar
for people who have assets.
SENATOR LEMAN asked him to comment on the amount of
discretion the Commissioner should have. MR. DAVIS said the
Commissioner should have the discretion to evaluate
competing proposals and put them out to bid.
SENATOR SHARP asked him to comment on the expense of the
bonding, since he, personally would rather see the money
"put in the ground." MR. DAVIS said he didn't think it was
appropriate for DNR to judge exploration programs and being
held to a fixed program is not right. He said there are
ways to work around the bonding issue as long as the basic
concept of the bill is protected.
Number 491
ROBERT ERICKSON, Administrative Assistant for Teacher's
Local 959, and representing AFL-CIO, Plumbers and
Pipefitters, Fairbanks, said they like the concept of the
bill and think it is necessary for the well being of
Alaska's future.
Number 462
JOHN RINGSTAD, BP Exploration, Inc., supported large block
licensing for relatively unexplored areas in Alaska. Their
focus is on the North Slope and will remain there. They
believe the licensing approach would facilitate the
exploration of so-called interior basins in basically all
the state outside of Cook Inlet and the North Slope.
MR. RINGSTAD said they do oppose SB 150 as written. They
targeted its application to the North Slope, the oral outcry
auction provision, and the exemption which allows the
warehousing of acreage. He said that it is not clear that
licensing would bring about exploration of the Slope any
faster than conventional leasing would.
Number 321
JIM EASON, Director, Division of Oil and Gas, explained that
up to 500,000 acres would be available for large block
licensing. Any subsequent lease converted from a license
would be exempt from the statutory limits for leasing and
would be limited to 30,000 acres.
MR. EASON said there are two conclusions he has come to in
his 20 years of experience with the industry. One is that
things never stay the same and the second is that big dogs
here are small dogs there. He urged them to be careful and
not favor any one company in the legislation. The intent of
the legislation is not to cast aside the North Slope area or
anything else. They want to have the flexibility to react
to situations where they think it's in the state's best
interest, based upon the facts at the time, and public
comment, to use an alternative.
He said it was a valid point of contention that leasing
versus licensing will lead to earlier exploration and
development. To avoid litigation, it is important to have
real firm commitments, whether it's under leasing or
licensing, to make sure people do what they intended to do
in a timely basis.
On the bonding issue, he said it is important that the state
get what it bargains for. If the standard is too low, there
is the unfortunate circumstance where we will be left to try
and judge among competing proposals, non of which we are
assured will be carried out. That would be a mistake. On
one hand the state is giving up an extraordinarily valuable
right for an extended period of time to explore exclusively,
with no competition, a fairly large area. At the same time,
there is the right to convert areas to lease. If there is a
discovery, it will be an extraordinarily valuable right for
the licensee in exchange for a commitment up front for a
specified work program. The only way to be sure of getting
the work program is to have full bonding. Doing the bonding
on an annual basis, you would have to restrict the rights
that are transferred, so that the person doesn't have the
rights until the sequential bonding has been accomplished.
Number 215
SENATOR LEMAN announced SB 134 CREDITS AGAINST PURCHASE OF
ROYALTY OIL to be up for consideration for the purpose of
taking testimony from Larry Smith in Homer.
LARRY SMITH, representing himself, said there are things we
ought to do before we start providing credits for over-due
tax payments. He said Cook Inlet pays more than their share
for spill prevention and response planning and the state
should treat them equitably.
SENATOR LEMAN thanked Mr. Smith for his testimony and
announced they would take up SB 150 OIL & GAS EXPLORATION
LICENSES/LEASES again.
MR. EASON explained the reason they have the outcry auction
is because it is likely to be more in the state's interest
and that the competition would be stiffer in those
circumstances than under sealed bid.
Number 138
SENATOR SHARP commented that it looks like things are going
the way of big business. He asked if there was a place for
the independent at the current time in Alaska? MR. EASON
said the Department makes sure there are leasing
opportunities for independents by providing "a level playing
field." Leases have been taken by independents, but there
have been few instances where they have been able to drill,
for one reason or another. They still have the option for
competitive leasing and if they can put together the deal,
as the broker for the financing, they can participate.
TAPE 93-10, SIDE A
Number 001
SENATOR LEMAN thanked MR. EASON and everyone for their
participation and adjourned the meeting at 6:58 p.m.
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