Legislature(1995 - 1996)
05/10/1995 01:07 PM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE RESOURCES COMMITTEE May 10, 1995 1:07 p.m. MEMBERS PRESENT Senator Loren Leman, Chairman Senator Drue Pearce, Vice Chairman Senator Steve Frank Senator Robin Taylor COMMITTEE MEMBERS ABSENT Senator Rick Halford Senator Georgianna Lincoln Senator Lyman Hoffman COMMITTEE CALENDAR HOUSE BILL NO. 119 "An Act exempting schools from certain fees charged by the Department of Environmental Conservation; and providing for an effective date." SENATE BILL NO. 114 "An Act relating to high cost marginal oil wells." PREVIOUS SENATE COMMITTEE ACTION HB 119 - No previous action to record. SB 114 - See Resources minutes dated 3/8/95, 3/17/95, 4/7/95. WITNESS REGISTER Representative Gene Kubina State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Prime Sponsor of HB 119 Kit Ballentine, Section Chief Division of Environmental Health Department of Environmental Conservation 410 Willoughby Ave., Suite 105 Juneau, AK 99801 POSITION STATEMENT: Testified in support of HB 119 Annette Kreitzer, Staff to Senate Resources Committee State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Offered information on CSSB 114(RES) Jim Eason, Contractor Senate Resources Committee State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Answered questions on CSSB 114(RES) Jon Tillinghast One Sealaska Plaza, #301 Juneau, AK 99801 POSITION STATEMENT: Testified in support of CSSB 114(RES) ACTION NARRATIVE TAPE 95-60, SIDE A Number 001 CHAIRMAN LEMAN called the Senate Resources Committee meeting to order at 1:07 p.m. HB 119 EXEMPT SCHOOLS FROM CERTAIN DEC FEES SENATOR LEMAN brought HB 119 before the committee as the first order of business. REPRESENTATIVE GENE KUBINA, prime sponsor of HB 119, explained that in 1992, DEC was authorized to require user fees for kitchen inspections, etc., however, they did not start charging school districts this fee until this year. Several school districts have requested that legislation be introduced that will expect them from paying the user fee. He noted an exemption for charities was provided through regulations after passage of the original bill. SENATOR LEMAN asked if other things like water and waste disposal are exempt from DEC user fees. REPRESENTATIVE KUBINA responded that the legislation is specifically directed at the cafeteria facilities. Number 90 KIT BALLENTINE, Division of Environmental Health, Department of Environmental Conservation, voiced the department's support for HB 119. Ms. Ballentine related that the department's fee exemptions apply to charitable organizations defined as 501.C3 under the IRS code. The problem with school districts is that they are nonprofits, but they are not charitable organizations so they don't apply under that federal code exemption. She said she believes this is also true with the domestic and waste water permits and drinking water plan reviews, but she doesn't think that school districts are being charged for these plan reviews. Number 181 SENATOR TAYLOR moved HB 119 be passed out of committee with individual recommendations. Hearing no objection, it was so ordered. SB 114 HIGH COST MARGINAL OIL WELLS Number 190 SENATOR LEMAN brought SB 114 before the committee as the next order of business, noting there was a proposed Resources CS. He said his intent was to adopt the committee substitute, but to not move the legislation out of committee so that it can be worked on during the interim. SENATOR PEARCE moved that CSSB 114(RES) be adopted as a working document. Hearing no objection, the motion carried. Number 214 ANNETTE KREITZER, staff to the Senate Resources Committee, explained that changes were made in the legislation in response to previous industry testimony and ideas put forth in previous hearings by the committee. An earlier draft of the bill required a six-month period for which the certificate is sought and the well being in production for at least 120 days before it could be certified as a high cost marginal well. The new committee substitute changes it to one month and 20 days in production. Also, the credit of $2.00 per barrel has been decreased to $.25 per barrel of production. The credit may not exceed the lower of $125,000 per well or $500,000 per producer. The credit must now be used within one year as opposed to the previous five years. The committee substitute also contains a new section that relates to North Slope test or development wells. It provides that the credit would be allowed on the production of the first 100 barrels per well and the credit cannot be combined with other credits. It also provides that the weighted average has to less than 15 degrees API. It is for wells where drilling began on or after July 1, and the well has to be located north of the Umiak baseline. Number 245 SENATOR LEMAN commented that right now if it is $.25 per barrel of production and if there is a one-eighth royalty, that is equivalent to a $2.00 per barrel of royalty oil. There has been discussion on another piece of legislation of a royalty reduction in the order of $.50 to $.80 a barrel. This is a greater one, and even that may exceed the value of the state's royalty share at $2.00 a barrel. SENATOR FRANK asked if this was referring to royalty, or was this for other taxes. ANNETTE KREITZER responded that for the Cook Inlet wells the credit could be applied against oil or gas rental, royalty payments, or taxes that are due, or oil and gas bonus payments. For the North Slope development wells the credit can be taken against the production tax. Number 275 JIM EASON, Contractor, Senate Resources Committee, responding to Senator Leman's comment on the reduction exceeding the value of the state's royalty share, said it is unlikely that the well-head value of the oil would be so low that a $2.00 credit against it would zero out the royalty. SENATOR LEMAN noted that previous testimony was that two wells on the North Slope would have qualified under the previous definition of "high cost marginal wells" and he didn't know if this would change the number of wells that would qualify. All of the wells, with the exception of those two, would have been in Cook Inlet. JIM EASON agreed, and he added that as things currently are on the North Slope, he's not sure that any wells would qualify for that particular provision, but as time passes, it is likely that they will. Number 340 JON TILLINGHAST, representing Occidental Petroleum, introduced Ed Behm, Alaska Asset Manager for the company. He noted there were a number of OXY USA officials present in the Capital City to talk with legislators and executive branch officials on the challenge of encouraging heavy oil production on the North Slope. Mr. Tillinghast thanked the committee for raising the issue of how to encourage heavy oil production on the slope. He referred to the West Sak Sands Schrader Bluff Field, which is the largest known and delineated but undeveloped field in North America, and said one of the state of Alaska's greatest challenges over the next two or three years is to figure out how to encourage development of that field in the relatively near future while there is still a pipeline to ship that oil through. He added that CSSB 114(RES), for the first time, raises that issue and they want to work with the committee on the legislation in the interim, as well as during the next session. Number 357 SENATOR LEMAN asked Mr. Tillinghast if he saw any problem on timing of passage of the legislation if the committee works through the interim to try to get the bill into a position where it can be moved fairly early next session. JON TILLINGHAST answered that it was not a problem. SENATOR LEMAN asked Mr. Tillinghast if they see the bill as something workable that could provide some benefit. JON TILLINGHAST answered that he thinks there will be testimony and research work done on specific numbers, but, in terms of encouraging a new field and encouraging capital investment, the " royalty holiday approach" is the best way to influence initial capital investment. Number 400 There being no further witnesses to testify on SB 114, SENATOR LEMAN stated it is likely the committee will hold its first interim hearing in September. He then adjourned the meeting at 1:35 p.m.