Legislature(1995 - 1996)
04/22/1996 03:55 PM Senate RES
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
SENATE RESOURCES COMMITTEE
April 22, 1996
3:55 P.M.
MEMBERS PRESENT
Senator Loren Leman, Chairman
Senator Drue Pearce, Vice Chairman
Senator Steve Frank
Senator Rick Halford
Senator Robin Taylor
Senator Georgianna Lincoln
MEMBERS ABSENT
Senator Lyman Hoffman
COMMITTEE CALENDAR
CS FOR HOUSE BILL NO. 325(FIN) am
"An Act relating to modification of royalty to encourage production
from an oil pool containing heavy oil; and providing for an
effective date."
PREVIOUS SENATE COMMITTEE ACTION
HB 325 - No previous action to record.
WITNESS REGISTER
Representative Joe Green
State Capitol Bldg.
Juneau, Alaska 99801-1182
POSITION STATEMENT: Sponsor of HB 325.
Ken Boyd, Director
Division of Oil and Gas
Department of Natural Resources
3601 C Street, Ste. 1380
Anchorage, AK 99503-5948
POSITION STATEMENT: Commented on HB 325.
Bill Van Dyke
Division of Oil and Gas
Department of Natural Resources
3601 C Street, #1380
Anchorage, AK 99503-1380
POSITION STATEMENT: Commented on HB 325.
Jon Tillinghast
Simpson, Tillinghast, Sorensen & Lorensen
One Sealaska Plaza, Suite 300
Juneau, AK 99801
Midland, TX 79710
POSITION STATEMENT: Supported HB 325.
Rick Foppiano
Oxy USA, Inc.
P.O. Box 50250
Midland, TX 79710
POSITION STATEMENT: Supported HB 325.
Mike Callaghan
1540 Medfra
Anchorage, AK 99501
POSITION STATEMENT: Opposed HB 325.
ACTION NARRATIVE
TAPE 96-62, SIDE A
Number 001
HB 325 NO. SLOPE HEAVY OIL ROYALTY MODIFICATION
CHAIRMAN LEMAN called the Senate Resources Committee meeting to
order at 3:55 p.m. and announced HB 325 to be up for consideration.
SENATOR PEARCE moved to adopt SCS CSHB 325(RES), Z version, dated
4/21/96. There were no objections and it was so ordered.
REPRESENTATIVE GREEN said he supported the changes in the Senate
CS.
SENATOR LEMAN asked Representative Green if he minded clarifying
the $15 per barrel charge being applied at the LACT meter. He
replied no.
KEN BOYD, Director, Division of Oil and Gas, said language on page
1, line 12 assumes that the charge is calculated at the LACT meter
at Pump Station 1.
SENATOR LEMAN asked if that's the case did he object to clarifying
that in the bill.
BILL VAN DYKE, Division of Oil and Gas, said their understanding
was that the $15 dollars would be at the LACT meter for each of the
individual pools and he thought some clarification might be
worthwhile.
Number 90
SENATOR PEARCE moved to adopt a conceptual amendment clarifying
that issue. There were no objections and it was so ordered.
Number 124
SENATOR LEMAN asked Mr. Boyd to explain why several points he
brought up in a letter to him in opposition to HB 325 are some of
the same points that had been raised in this committee regarding SB
318. The language he was concerned with is "It's inflexible. The
relief is awarded without any showing of any economic necessity."
MR. BOYD explained that Northstar is presented as a package that
covers a lot of different things. Nobody has said the field is
uneconomic; something is needed to move forward faster. He said in
this bill he is asking for a complete analysis because he doesn't
know if relief is needed or not.
SENATOR LEMAN asked him to explain another comment from the letter
that said HB 325 doesn't provide the State with any upside
potential. That is the same criticism some have leveled at SB 318.
MR. BOYD explained at Northstar it depends on what the future holds
as to what the State receives. He considered it to be an analysis
of a set of conditions that have an outcome depending on the
future.
SENATOR LEMAN asked him to clarify his position on the hiring of
Alaskan residents.
MR. BOYD said in the Northstar deal he thought the level of
commitment to Alaska hire was taken a step farther than anything
that's in current leases. Here there's no mention of it at all.
JON TILLINGHAST, representing OXY USA, Inc., said they support
SCSHB 325 which took care of a number of troubling issues including
the problem of dealing with dual completions.
MR. FOPPIANO, OXY USA, Inc., said he had nothing to add.
Number 203
SENATOR FRANK said one issue he was concerned with was the cut off
price. MR. FOPPIANO explained the intent of the $15 limitation was
to deal with the reporting royalty and it was established to give
some upside protection to the State in the event of a sustained run
in oil prices.
SENATOR FRANK said he was concerned that we were giving up too much
in terms of setting the price too high.
MR. TILLINGHAST said the economic analysis Oxy USA ran demonstrated
that at today's projected oil prices, using the Department of
Revenue's projection of future oil prices, the development of this
field is going to be uneconomic. In the House they were asked what
if oil prices increased above and beyond the expectations. MR.
FOPPIANO continued explaining that prices fluctuate so much every
year that a high value of $15 was set to accommodate the times when
the price would be very low.
Number 301
SENATOR LINCOLN asked them to comment on the fact that the bill
doesn't mention Alaska hire. MR. TILLINGHAST replied that Oxy USA
is not the operator of the unit and, therefore, they are not the
ones to ask that question. He acknowledged that it is a serious
issue. He said when the University of Alaska Anchorage did its
economic impact analysis of the development of the field, it looked
at track records for similar developments and concluded that
upwards of 80 percent of the people that got the high paying long
term jobs were going to be Alaskan residents.
SENATOR LINCOLN asked if he would object to putting Alaska hire in
the legislation. MR. TILLINGHAST said he didn't represent the
operator and couldn't really answer that. It would have no affect
on Oxy USA because they didn't hire.
SENATOR FRANK said he was concerned about local hire, too. He
didn't know how to address it.
MR. TILLINGHAST said he thought it would be a shame to associate
controversies with existing players with the "new blood" this bill
would encourage to operate in Alaska.
SENATOR FRANK noted that the severance tax on this field would be
low or nothing. So he thought they really were talking about just
jobs. MR. TILLINGHAST replied that would be true if you believe
the field would be developed in the absence of this legislation.
He thought the 15-years of failed efforts to develop heavy oil
would suggest it wouldn't be.
MIKE CALLAGHAN, Anchorage, said he hadn't seen any fields up there
that aren't developable. One of the primary contingencies is the
range with which Alyeska Pipeline Corporation charges to run the
oil through the pipeline. This is a restriction on any other
independents who want to come up here.
MR. CALLAGHAN thought this was basically a give away and he said
the legislature was supposed to be protecting the benefits for the
people of Alaska.
SENATOR FRANK asked what the term was on the royalty reduction.
SENATOR LEMAN answered it was 2 percent for 1825 days.
Number 424
SENATOR PEARCE moved to pass SCS CSHB 325(RES) from committee with
individual recommendations and the appropriate fiscal notes. There
were no objections and it was so ordered.
SENATOR LEMAN adjourned the meeting at 4:25 p.m.
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