Legislature(1995 - 1996)
04/18/1996 05:10 PM Senate RES
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* first hearing in first committee of referral
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SENATE RESOURCES COMMITTEE
April 18, 1996
5:10 P.M.
MEMBERS PRESENT
Senator Loren Leman, Chairman
Senator Drue Pearce, Vice Chairman
MEMBERS ABSENT
Senator Steve Frank
Senator Rick Halford
Senator Robin Taylor
Senator Georgianna Lincoln
Senator Lyman Hoffman
COMMITTEE CALENDAR
Confirmation Hearing for David Norton, Commissioner, AOGCC
SENATE BILL NO. 318
"An Act authorizing, approving, and ratifying the amendment of
Northstar Unit oil and gas leases between the State of Alaska and
BP Exploration (Alaska) Inc.; and providing for an effective date."
PREVIOUS SENATE COMMITTEE ACTION
SB 318 - See Resources minutes dated 3/29/96, 3/30/96, 4/3/96,
4/11/96, 4/13/96, 4/15/96, and 4/17/96.
WITNESS REGISTER
David Norton, Commissioner
Alaska Oil and Gas Conservation Commission
1208 S. Street
Anchorage, AK 99501
POSITION STATEMENT: Gave statement regarding his confirmation.
David Johnston, Chairman
Alaska Oil and Gas Conservation Commission
3001 Porcupine Dr.
Anchorage, AK 99501
POSITION STATEMENT: Supported Mr. Norton's confirmation.
Commissioner John Shively
Department of Natural Resources
400 Willoughby Ave.
Juneau, AK 99801-1724
POSITION STATEMENT: Commented on SB 318.
Eric Luttrell, Vice President
Exploration and Development
British Petroleum Alaska, Inc.
P.O. Box 996612
Anchorage, AK 99519-6612
POSITION STATEMENT: Commented on SB 318.
ACTION NARRATIVE
TAPE 96-59, SIDE A
Number 001
CHAIRMAN LEMAN called the Senate Resources Committee meeting to
order at 5:10 p.m. and said they would begin by taking Commissioner
Norton's statements regarding his confirmation to office.
MR. DAVID NORTON, Commissioner, Alaska Oil and Gas Conservation
Commission, read a statement that he faxed to the committee. He
said the Commission's role is to assure efficient replacement of
State's hydrocarbon resources. This is accomplished by preventing
waste of the resource, insuring maximum ultimate recovery of the
resources, and by protecting correlative rights of adjacent owners
of oil and gas properties.
MR. NORTON said he first moved to Alaska in 1974 to work on the
Transalaska Pipeline. For the past 23 years, the majority of his
career has been associated with design, construction, and operation
of the pipeline, including the facilities for gas handling refining
and metering.
He is a licensed professional engineer since 1984. He said he has
a unique industry perspective because of his Alyeska Pipeline
experience. He said he works well with the other commissioners.
He said the Commission is in the process of completing the first
comprehensive revision of their regulations since 1986. Their
focus is on streamlining technical procedure requirement for
drilling and reservoir management. They are deleting obsolete
requirements and providing less restrictive regulations to allow
more latitude to regulate for rapidly changing oil field
techniques.
SENATOR LEMAN asked him about the additional educational courses he
has taken in this area. He also wanted to know how he planned to
continue his education. MR. NORTON said he gained additional
experience by taking a 40 hour course at the University of Texas on
reservoir engineering. He is also auditing a class at the
University of Alaska Fairbanks on drilling and production
techniques. He said he was taking the standard MMS well control
school in Anchorage which uses a drilling simulator.
SENATOR LEMAN asked how his working relationship was with the other
commissioners in terms of their abilities to cover different areas
of expertise. MR. NORTON said they all have quite a bit of
experience in different areas and they work very well together.
SENATOR LEMAN asked if the oil and gas conflicts had been resolved
relating to the sale of gas from the North Slope. MR. NORTON said
the current hearings that are precluding his presence in Juneau are
on that issue.
Number 294
DAVID JOHNSON, Chairman, AOGCC, said he supported Mr. Norton's
appointment as he has come to appreciate the talents and
capabilities he brings to the table.
In terms of the hearings before them on Conservation Order 360 and
the conflicts between BP and ARCO, he sees a strong desire on the
part of the principal owners to work very cooperatively together.
They seem to be working in the right direction.
SENATOR LEMAN asked if there was anything he had to ask of the
legislature. MR. JOHNSON said he appreciated their time and he
looked forward to working on the Commission.
SENATOR LEMAN thanked him for the work he was putting into it.
SB 318 NORTH STAR OIL & GAS LEASE AMENDMENT
The following is a verbatim transcript of testimony taken on SB
318.
CHAIRMAN LEMAN:
We'll next take up SB 318. The Committee adopted, yesterday,
a Resources Committee substitute and we obviously do not have right
now enough people to adopt any other amendments or to report the
bill from this committee. I think others will be coming shortly.
At least that's my understanding.
I'll note that we have Eric Luttrell from BP on line and
Commissioner Shively was just here and has just stepped out, but
what I'd like to do is, since the CS is essentially is in three
sections. There are findings of fact, findings of conclusion, and
then there's the section on the amended agreement. I'd like to go
through at least the first part that I think we can do now, if all
the others are showing up and step through each article of the
findings of fact and make sure that what we heard and read is
correct. I didn't want to misrepresent anything in the findings
that was other than what was said.
I recognize that in some cases when your taking directly off
a transcript, there's words that are said in a different order when
you're speaking that make sense and when you read it in writing
don't make so much sense and I'm perfectly willing to pick up those
types of corrections to clean it up a little bit if we can as we go
along. Because I find that there are a few awkward statements made
that at the time they were being said I didn't think they were
awkward, but they seem awkward in reading them. Having said that,
I'd like to first see if there's any comments on article one, the
State's net profit sharing history of the Northstar leases before
unitization.
Commissioner Shively, are you going to be representing the
department here today? Is there anything in that first article
that you want to comment on.
COMMISSIONER SHIVELY:
Mr. Chairman, for the record, my name is John Shively. I'm
the Commissioner of Natural Resources. To be fair, we have not had
time to do a complete analysis of a 40-page committee substitute
for a three page bill. And so I don't want to mislead you or
anyone else into saying that we're prepared to complete the
exercise that you want to go through tonight. I believe that we do
have Ken Boyd, Patrick Coughlin, and Kevin Banks at the LIO in
Anchorage, but I would like to make some general comments, if
that's acceptable.
CHAIRMAN LEMAN:
O.K.
COMMISSIONER SHIVELY:
I think that in general section one of the bill, although it
captures some of what was said is unnecessarily of one-sided
portrayal of not only what we testified to, but what the facts are.
In addition, then, in at least a couple places the material that we
delivered to the committee, either in writing or in testimony, has
been inaccurately portrayed. And I think most importantly the
whole discussion of section one ignores the down side to the State
almost totally which is a big part of why we have this agreement in
front of you.
So, if you want to start through paragraph by paragraph, I
believe that Mr. Coughlin will be prepared to tell you those
paragraphs we have some questions with and I would be prepared to
help. I don't know how valuable the exercise is at this point
given that, as I understand it, the sort of critical part, the
rewrite of the agreement is not acceptable to BP and therefore the
legislation is not acceptable. But we're willing to do whatever
you would like.
In the interest of time I would suggest that at some time
tomorrow we probably could have in writing those places where we
think there are misstatements of what we provided the committee and
where we think there are omissions.
CHAIRMAN LEMAN:
That would be fine with me and we don't have enough people
here to move the bill today and I'm not interested in rushing a
bill through that does not accurately portray what is fact.
Certainly holding it till tomorrow will help accomplish that.
My understanding in talking with Mr. Luttrell just a few
minutes ago was that, while BP may have some problem with the
presentation of the findings, they do not object to having findings
and so that's why I was interested in stepping through and
determining what is factual, what is not, and if it is one sided,
then, perhaps, inserting those things that, if you're concerned
about, we can insert other things and make it less one sided, if
that is indeed the case.
COMMISSIONER SHIVELY:
I think there is one other sort of substantive problem. There
are some things in here which we believe were not ever put in the
record, unless the committee has other material. So, that's
another problem that we've seen. There are areas that have been
covered that as far as we know were not in the record.
CHAIRMAN LEMAN:
You'll be able to identify those?
COMMISSIONER SHIVELY:
Yes.
CHAIRMAN LEMAN:
O.K. Do you have anything else? Questions?
CHAIRMAN LEMAN:
Mr. Luttrell was there anything you would like to say now. We
do have the letter from you that I was just shown minutes ago.
Would you prefer to hold off and step through or provide us some
other response, point by point on the findings or tomorrow or do
you want to do that today or what's your pleasure?
ERIC LUTTRELLL:
My name for the record is Eric Luttrell. I am the Vice
President of Exploration and Development for BP in Alaska. I'm not
actually prepared today to have any long conversations about the
findings about section one, about the findings of fact. As you
know, I told you on the phone we do not see the necessity to have
that. If this is something that you think we should, however, be
responding to, we will take the time over the next couple of days
to go through that carefully to ensure that we correct the
inaccuracies that we also saw in the initial reading of it.
As I said to you before, I thought it was only appropriate and
- that the legislature put findings in here, particularly findings
of conclusion. And I note that I've seen a document from one of
the Senators suggesting some additional language in the findings of
conclusions and I would encourage and work with the legislature to
ensure that those are accurate representative [indisc] of the
legislature.
CHAIRMAN LEMAN:
O.K., just trying to think in the interests of time, if you
need a couple of days, that may put us beyond tomorrow and would
mean that we probably get the information, perhaps, some time over
the weekend and could deal with this bill on Monday.
SENATOR PEARCE:
Did I miss something? I read the letter to say that if there
are any changes, BP won't accept it. So I don't know why we're
bothering with the findings.
MR. LUTTRELL:
If you would like, I will read my letter into the record, if
you so choose and comment about the letter itself.
CHAIRMAN LEMAN:
O.K., please do, probably not everybody in the room or people
listening have a copy of the letter. So go ahead.
MR. LUTTRELL:
For the record, Mr. Chairman and members of the committee, BP
has reached a negotiated agreement with the State of Alaska to
amend the Northstar unit leases. The legislature has been asked to
consider and ratify that agreement. Ratification will lead to the
early development of Northstar to the mutual benefit of both Alaska
and BP.
The CS or committee substitute has altered the agreement
attempting to reopen negotiations. All of the areas of the
original agreement which have been amended in the CS version are
areas which were carefully discussed and negotiated to arrive at
the balanced agreement. Both we and the DNR sought to explain to
your committee the reason for our - for these conclusions.
BP will not reopen the negotiations and cannot agree to
changes. To be clear, BP and its contractors have heard the
concerns of the legislature over local hire and we reaffirm our
public commitment to maximize job opportunities for Alaskans and
Alaskan contractors represented by Northstar development.
CHAIRMAN LEMAN:
Mr. Luttrell, do you have just a general opposition to what
you call reopening negotiations or do you have specific response to
the changes that we are proposing to make in this agreement. You,
know the changes we're proposing, in my opinion, represent what was
presented to us in committee. At least, it's our interpretation of
what was said in committee or presented to us and did not change
the substance of the agreement. We haven't changed the terms, the
monetary terms. We have changed the effective date and we did
change, as I alluded to earlier, the section on local hire just, it
just says to the extent allowed by law and then it, you know, I
think it helps clarify that language. It provides a little more
comfort for committee members. But otherwise I believe that
everything else is consistent with the testimony and the
presentations.
If we have inaccurately interpreted that, I'd like to know
those specific areas. Otherwise, I'm wondering if there are fixes
we can make to it that would cause you to move from the position or
if there really are not changes we can make that would cause that.
Is it you're saying it's either that agreement or none.
MR. LUTTRELL:
Well, as we have discussed on several occasions, our concern
is that once we open Pandora's box of making changes in the
agreement, we'll be negotiating with 60 different people over the
next three weeks and we don't think that's a practical way to go
forward.
As I said in my letter, we had worked most of these issues
very, very carefully both with the Department of Natural Resources
and the Department of Law and feel as though they have been address
as effectively as practical in the agreement. So our position
would be that we would like to see no changes in the amendment to
the lease, itself. We are, as I said before, very open and have
expected that the legislature would make changes to the findings.
CHAIRMAN LEMAN:
Commissioner, do you have anything else to add and then I'll
just...
COMMISSIONER SHIVELY:
Mr. Chairman, just one in terms of for the final change on
page 40 where they - you ask that I deliver a letter to the revisor
of statutes confirming that BP Exploration or its parent entity has
made an irrevocable commitment to full funding. I cannot believe
that any company would make a fully irrevocable commitment. As
things go along, there may be a variety...so I think that's a
standard that I probably cannot meet.
CHAIRMAN LEMAN:
What does project sanction mean to you?
COMMISSIONER SHIVELY:
Project sanction, to me, means that the Board of Directors has
agreed to proceed with the project. And that then BP starts
spending money. As I think you probably know from engineering
there may come times for a variety of situations that are outside
of BP's control where they may choose to stop. So I don't want to
speak for them, although I have discussed this issue a little with
them.
Irrevocable means they have to proceed no matter what with the
spending of that money. I don't think they will do that. I think
they will spend the money if it makes sense and they want the
project, but if oil drops to $6 a barrel or the pipeline has to be
shut down or a variety of other things, you're asking them to
continue to spend money no matter what the situation is. Although
I think risk of that is relatively small, it's not a risk that I
assume they would take.
CHAIRMAN LEMAN:
I don't read that they would have to continue spending the
money. I read what's on page 30 would kick in which is if you
don't meet the agreement, then you lose the leases which is their
drop dead provision that you had in the agreement.
MR. LUTTRELL:
If I could enter into this conversation briefly, Mr. Chairman.
I think the reason the language was written the way it was.
Because the agreement was that if we fail to go forward with the
project, the leases would go back. So the necessity to change the
language did not seem important to me. It didn't seem like it was
a big deal, but the committee substitute chose to change the
language and I would concur with what Mr. Shively has said. It's
almost like we're changing the language for the joy of changing the
language.
CHAIRMAN LEMAN:
Mr. Baldwin, did you have anything you wanted to add to this
discussion today? Would you be prepared at a future time to give
us specific comments on the findings? We laid out here what at
least we believe came out of the transcripts. It's possible. Ann
does a wonderful job. I haven't seen too many people do a job
that's much better and more timely. But it is possible we could
have misinterpreted in pulling things out and then things could be
clarified.
MR. BALDWIN:
We've looked at the references to what we've advised the
committee and we feel they are accurately reflected here.
COMMISSIONER SHIVELY:
Mr. Chairman, just for the record. I did not mean to indicate
that any of the quotes were inaccurate. I actually was amazed, as
a matter of fact, at how accurate the quotes were. I just felt
that they didn't portray the entire picture that the Department
presented on this project.
CHAIRMAN LEMAN:
But if you would provide us something that maybe would help
give us a clearer picture, I would certainly appreciate that.
COMMISSIONER SHIVELY:
We intend to.
CHAIRMAN LEMAN:
There were one or two places where, John, in your testimony I
thought it was just a little bit awkward to where you probably in
speaking paused and regrouped or something. You know how a
conversation takes place, but in writing it wasn't as clear and if
you could specifically look at those I could probably even identify
where they are and then maybe we could correct that. That way for
someone else who wasn't here at the hearings, reading this at some
future time...
COMMISSIONER SHIVELY:
We will certainly try to do that, but I believe that in terms
of the quotes, they were very accurately captured, even if I didn't
make sense.
CHAIRMAN LEMAN:
We had you up here for a long time and if there were only two
spots like that, you actually did a wonderful job. I don't have
any further business to come before us. Senator Pearce - anything
else at this time?
We'll hold this bill over and I'd expect that the next
opportunity we have to work on it which probably is not going to be
tomorrow. It's probably going to be Monday. I hope we can pull
the rest of this information in and we'll plan to deal with the
bill on Monday.
Without any further business to come before us, we're
adjourned [6:05 p.m.].
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