Legislature(2003 - 2004)

05/19/2003 10:35 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                          May 19, 2003                                                                                          
                           10:35 p.m.                                                                                           
                                                                                                                                
MEMBERS PRESENTG                                                                                                              
                                                                                                                                
Senator Scott Ogan, Chair                                                                                                       
Senator Thomas Wagoner, Vice Chair                                                                                              
Senator Fred Dyson                                                                                                              
Senator Ben Stevens                                                                                                             
Senator Ralph Seekins                                                                                                           
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Kim Elton                                                                                                               
Senator Georgianna Lincoln                                                                                                      
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 283                                                                                                              
"An Act relating to limitations on coal leases."                                                                                
     MOVED HB 283 OUT OF COMMITTEE                                                                                              
                                                                                                                                
CS FOR HOUSE BILL NO. 24(JUD)                                                                                                   
"An Act relating to intergovernmental agreements with the                                                                       
federal government regarding management of fish or game in the                                                                  
state."                                                                                                                         
     MOVED CSHB 24(JUD) OUT OF COMMITTEE                                                                                        
                                                                                                                                
CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 28(FIN)                                                                            
"An Act relating to adjustments to royalty reserved to the state                                                                
to encourage otherwise uneconomic production of oil and gas; and                                                                
providing for an effective date."                                                                                               
     MOVED CS SSHB 28(FIN) OUT OF COMMITTEE                                                                                     
                                                                                                                                
PREVIOUS ACTION                                                                                                               
                                                                                                                                
HB 283 - See Resources minutes dated 5/16/03 and 5/18/03.                                                                       
                                                                                                                                
HB 24 - See State Affairs minutes dated 5/17/03 and Resources                                                                   
minutes dated 5/18/03.                                                                                                          
                                                                                                                                
HB 28 - No previous action to record.                                                                                           
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Representative Bruce Weyhrauch                                                                                                  
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Sponsor of HB 24                                                                                         
                                                                                                                              
Mr. Steve White                                                                                                                 
Assistant Attorney General                                                                                                      
Department of Law                                                                                                               
PO Box 110300                                                                                                                   
Juneau, AK  99811-0300                                                                                                          
POSITION STATEMENT:  Told members HB 24 will not affect existing                                                              
agreements                                                                                                                      
                                                                                                                              
Mr. Ron Somerville                                                                                                              
Advisor to the House & Senate Majority                                                                                          
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Answered questions about HB 24                                                                           
                                                                                                                              
Representative Norm Rokeberg                                                                                                    
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Co-sponsor of HB 28                                                                                      
                                                                                                                              
Representative Vic Kohring                                                                                                      
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Co-sponsor of HB 28                                                                                      
                                                                                                                              
Mr. Ken Boyd                                                                                                                    
Alaska Oil and Gas Association (AOGA)                                                                                           
121 West Fireweed Lane                                                                                                          
Anchorage, Alaska 99503                                                                                                         
POSITION STATEMENT:  Supports CS SSHB 28(FIN)                                                                                 
                                                                                                                              
Mr. Kevin Banks                                                                                                                 
Division of Oil and Gas                                                                                                         
Department of Natural Resources                                                                                                 
550 W. 7th Ave. Ste 800                                                                                                         
Anchorage AK 99501-3560                                                                                                         
POSITION STATEMENT:  Answered questions about CS SSHB 28(FIN)                                                                 
                                                                                                                                
Mr. Mark Myers, Director                                                                                                        
Division of Oil and Gas                                                                                                         
Department of Natural Resources                                                                                                 
550 W. 7th Ave. Ste 800                                                                                                         
Anchorage AK 99501-3560                                                                                                         
POSITION STATEMENT:  Answered questions about CS SSHB 28(FIN)                                                                 
                                                                                                                                
Mr. Kevin Tabler                                                                                                                
Manager, Land and Govt. Affairs                                                                                                 
Union Oil Company of California (Unocal)                                                                                        
909 W. 9th Ave                                                                                                                  
Anchorage, Alaska 99501                                                                                                         
POSITION STATEMENT:  Supports CS SSHB 28(FIN)                                                                                 
                                                                                                                              
ACTION NARRATIVE                                                                                                              
TAPE 03-49, SIDE A                                                                                                            
                                                                                                                                
CHAIR SCOTT  OGAN called the Senate  Resources Standing Committee                                                             
meeting to order  at 10:35 a.m. Senators  Wagoner, Stevens, Dyson                                                               
and Chair Ogan were present. The committee took up HB 283.                                                                      
                                                                                                                                
                 HB 283-ACREAGE FOR COAL LEASES                                                                             
                                                                                                                                
CHAIR  OGAN informed  members that  at the  last hearing  on this                                                               
legislation,  he  was  concerned  about  coal  leases  overlaying                                                               
traditional  oil and  gas  leases because  coal  is available  in                                                               
areas that  are also available  for areawide leasing for  oil and                                                               
gas in  the Tyonek Basin. He  noted the language on  page 1, line                                                               
11,  reads,  "The  coal  deposits  in the  land  covered  by  the                                                               
application shall  be temporarily  set aside" therefore  the coal                                                               
leases will not  affect deep hole oil and gas  leases. He said he                                                               
discussed  the matter  with Division  of  Oil and  Gas staff  and                                                               
learned that a company with a  coal lease can exploit the shallow                                                               
gas  for  either  production  or  safety  reasons.  He  said  his                                                               
concerns have been addressed.                                                                                                   
                                                                                                                                
SENATOR  WAGONER  moved HB  283  from  committee with  individual                                                               
recommendations and its attached zero fiscal note.                                                                              
                                                                                                                                
CHAIR  OGAN  announced  that  all  members  were  present  except                                                               
Senators  Lincoln  and  Elton. He  then  announced  that  without                                                               
objection, HB 283 moved from committee.                                                                                         
                                                                                                                                
CHAIR OGAN announced an at-ease.  Upon reconvening, the committee                                                               
took up HB 24.                                                                                                                  
                                                                                                                                
     CSHB 24(JUD)-AGREEMENTS ON MANAGEMENT OF FISH AND GAME                                                                 
                                                                                                                                
REPRESENTATIVE BRUCE  WEYHRAUCH, sponsor  of HB 24,  told members                                                               
HB 24  follows on  the heels of  legislation introduced  by Chair                                                               
Ogan that said the state will  in no way cooperate or spend funds                                                               
on  the Glacier  Bay  lawsuit.  He explained  that  in the  early                                                               
1980s, in  the Alaska Wildlife  Alliance versus Jensen  case, the                                                               
District Court  of Alaska and  the Ninth Circuit  Court indicated                                                               
that ANILCA  did not prohibit  commercial fishing in  Glacier Bay                                                               
but  that  the  National  Park   Service  could  prohibit  it  by                                                               
regulation.  Thereafter,  the  National   Park  Service  began  a                                                               
process  of promulgating  regulations  to  prohibit and  restrict                                                               
commercial  fishing in  Glacier  Bay National  Park. Senator  Ted                                                               
Stevens  then  introduced  legislation, which  Congress  adopted,                                                               
that said  commercial fishing should  be closed in  certain areas                                                               
of the  park and restricted to  those who have a  lifetime access                                                               
permit for the  tanner, halibut and salmon  troll fisheries. That                                                               
is  the status  of  fishing  in Glacier  Bay  now. Congress  also                                                               
established a compensation program  related to those closures and                                                               
restrictions.   Senator    Frank   Murkowski    then   introduced                                                               
legislation, S 501,  which Congress adopted, that  said the State                                                               
of  Alaska and  the National  Park Service  shall enter  into co-                                                               
management agreements  on the management of  commercial fisheries                                                               
in the outside waters of Glacier Bay National Park.                                                                             
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH  told  members  HB  24  was  originally                                                               
introduced to  prohibit the  State of  Alaska from  entering into                                                               
any  co-management agreement  with  the federal  government or  a                                                               
sovereign  entity. If  it did  enter into  those agreements,  the                                                               
legislature  would  have to  review  the  agreements. During  the                                                               
hearings  in  the House,  it  became  apparent that  certain  co-                                                               
management agreements  between the federal and  state governments                                                               
benefit the  State of Alaska,  such as the management  of bowhead                                                               
whales or  waterfowl, so the  House did  not want to  prohibit or                                                               
require legislative review of  all co-management agreements. CSHB
24(JUD)  now says  the  State of  Alaska may  not  enter into  an                                                               
agreement that cedes jurisdiction to  the federal government.  He                                                               
stated:                                                                                                                         
                                                                                                                                
     You do not  want to have any  state...public servant or                                                                    
     bureaucrat, having  a co-management agreement  with the                                                                    
     federal   government   that   cedes   jurisdiction   by                                                                    
     contract,  which   we  can't  do  by   Constitution  or                                                                    
     statute.  And, tactically,  the reason  you want  to do                                                                    
     that is  because eventually  if the  federal government                                                                    
     says   we  have   management  jurisdiction   over  this                                                                    
     resource, and  you agreed to  that in a  contract, then                                                                    
     that may  undermine any argument that  says no, federal                                                                    
     government,  you  don't  have  management  jurisdiction                                                                    
     over our resources  - the State of Alaska  does. So, by                                                                    
     passing this statute, tactically,  you can say if there                                                                    
     were   a   co-management   agreement   and   it   ceded                                                                    
     jurisdiction  of management  over a  fishery, it  would                                                                    
     have been  void as against  public policy of  the State                                                                    
     of Alaska.  And I think  that's, sort of as  a tactical                                                                    
     reason,  why  this  was   introduced,  to  prohibit  by                                                                    
     contract  what we  can't do  by statute  or regulation,                                                                    
     the  secession of  our management  and jurisdiction  of                                                                    
     our resources to the federal government.                                                                                   
                                                                                                                                
CHAIR OGAN said he toured the  Situk River in Yakutat a few years                                                               
ago, an  area with some  conflicts. A federal permit  is required                                                               
to float a state river. He said  he got an earful from the locals                                                               
in  the  area and  had  to  hold  his  tongue while  the  federal                                                               
officials  were checking  everyone's  permits. He  asked if  this                                                               
legislation will deal with that problem.                                                                                        
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  said it  would if  the State  of Alaska                                                               
and the  National Park  Service said  the federal  government has                                                               
jurisdiction to manage  the [riverbed] on behalf of  the state or                                                               
if [the state] cedes jurisdiction  of fish and game management on                                                               
that  river. It  is narrow  on  those issues.  It arguably  could                                                               
address  the co-management  agreement between  the National  Park                                                               
Service and the state if the  state, by management agreement or a                                                               
memorandum  of  understanding,  says  it will  give  the  federal                                                               
government  the  authority to  do  so,  whether  or not  that  is                                                               
allowable under the Alaska Constitution.  He said the legislation                                                               
is  intended to  make  any admission  by the  state  void if  the                                                               
federal government intends  to use it against the  state later in                                                               
court.                                                                                                                          
                                                                                                                                
CHAIR OGAN  asked a  representative of the  Department of  Law to                                                               
comment on the  legislation and describe its  application "in the                                                               
field."                                                                                                                         
                                                                                                                                
MR. STEVE  WHITE, Assistant Attorney  General, Department  of Law                                                               
(DOL), told members  he talked to staff at  the Alaska Department                                                               
of Fish  and Game (ADF&G)  who could not identify  any agreements                                                               
this legislation  would apply  to at  this time.  HB 24  would be                                                               
preventive  for  future  agreements. He  said  as  Representative                                                               
Weyhrauch said, the  intent is not to interfere  with the state's                                                               
interaction   with   the   federal  government   on   cooperative                                                               
management that does  not give away the state's  authority in any                                                               
manner.  For  example,  the state  cooperates  with  the  federal                                                               
government to implement fishery  management plans under the North                                                               
Pacific  Fisheries  Management  Council and  it  shares  research                                                               
information  for subsistence  management  on  federal lands.  The                                                               
state  and federal  governments  also  have agreements  involving                                                               
migratory waterfowl.  In those  situations, the  state cooperates                                                               
with the  federal government,  which was  given the  authority by                                                               
Congress  through  the Supremacy  Clause,  to  regulate in  those                                                               
areas.  The  state  assists  to   make  sure  its  interests  are                                                               
involved.                                                                                                                       
                                                                                                                                
MR.  WHITE said  if  ADF&G  attempted to  give  away the  state's                                                               
management  authority, the  contract  would be  subject to  being                                                               
voided by the  courts because it would be outside  of the state's                                                               
authority to do so.                                                                                                             
                                                                                                                                
CHAIR OGAN  said he  begs to differ  that no  existing agreements                                                               
have  given  away authority.  He  said  a  recent ruling  by  the                                                               
federal  subsistence board  for subsistence  fishing for  rainbow                                                               
trout  in   western  Alaska  is  egregious,   according  to  some                                                               
biologists.  He  also   referred  to  the  20   halibut  per  day                                                               
subsistence catch  established by the federal  subsistence board.                                                               
He  said  he  is  concerned   that  while  the  state  might  not                                                               
technically  be ceding  its  authority,  the federal  subsistence                                                               
board  does not  have a  mandate to  manage for  sustained yield.                                                               
Therefore,  the  state  is allowing  the  federal  government  to                                                               
manage  its resources  in  state waters  and  submerged lands  by                                                               
doing nothing, which is ceding by default.                                                                                      
                                                                                                                                
SENATOR  SEEKINS asked  if the  state has  cooperative agreements                                                               
with the  federal government for  the management of fish  for any                                                               
purpose within  the navigable  streams or  within three  miles of                                                               
the coastline of the state at this time.                                                                                        
                                                                                                                                
MR. WHITE said  he is personally not aware of  any. He noted that                                                               
Mr. Williams of ADF&G was shaking his head "no."                                                                                
                                                                                                                                
SENATOR SEEKINS  asked, if the  federal government claims  it has                                                               
management authority over fish for  subsistence uses in the Yukon                                                               
River, whether ADF&G recognizes that  claim and enters into a co-                                                               
management agreement.                                                                                                           
                                                                                                                                
MR. WHITE  said the  situation on  subsistence is  very difficult                                                               
because  the federal  government  has  management authority  over                                                               
some navigable waters but not all.                                                                                              
                                                                                                                                
SENATOR SEEKINS  said in  the Totemoff  case, the  Alaska Supreme                                                               
Court said that is not true.                                                                                                    
                                                                                                                                
MR. WHITE agreed.                                                                                                               
                                                                                                                                
SENATOR SEEKINS  asked if Mr.  White is saying the  Totemoff case                                                               
is tolled so that the state can have these agreements.                                                                          
                                                                                                                                
MR. WHITE replied,  "No. The Ninth Circuit ruled  contrary to the                                                               
state supreme court on the Totemoff case."                                                                                      
                                                                                                                                
SENATOR SEEKINS  disagreed. He said  the Totemoff case  was never                                                               
brought  to the  Ninth Circuit  Court. The  Alaska Supreme  Court                                                               
said, in  the Totemoff  case, that  the State  of Alaska  did not                                                               
have to recognize the federal claims.                                                                                           
                                                                                                                                
CHAIR  OGAN clarified  the decision  said that  is the  situation                                                               
unless the case goes to the U.S. Supreme Court.                                                                                 
                                                                                                                                
SENATOR SEEKINS again  asked if the state is now  involved in any                                                               
co-management agreements  in violation  of the  Totemoff decision                                                               
made by the Alaska Supreme Court.                                                                                               
                                                                                                                                
MR. WHITE said  he does not believe the state  has any agreements                                                               
along  those  lines.  ADF&G  is   closely  watching  the  federal                                                               
government's  exertion over  subsistence management  and, if  the                                                               
federal  government goes  beyond  what ANILCA  allows, the  state                                                               
would challenge.                                                                                                                
                                                                                                                                
SENATOR SEEKINS said  that is his concern. He again  asked if the                                                               
state  is  complying, via  contract,  or  spending any  money  to                                                               
assist the federal government to  exert management authority over                                                               
fish on the state's submerged lands.                                                                                            
                                                                                                                                
MR.  WHITE said  he does  not believe  the state  has any  formal                                                               
agreements. He  said the  state shares  research and  comments on                                                               
proposals,  such  as the  subsistence  halibut  fishery. He  said                                                               
ADF&G  objected   to  a  recent   proposal  before   the  federal                                                               
subsistence board to  allow for customary trade.  He told members                                                               
to the  extent the  federal subsistence  board is  taking action,                                                               
ADF&G is commenting  to protect the state's interests  but it has                                                               
not entered into any agreements to assist the federal board.                                                                    
                                                                                                                                
CHAIR OGAN  stated, "I'd like  to add  a comment. I  can't resist                                                               
taking the  bait. You  said they  were just  watching it  and the                                                               
department just  sat back  and watched  while the  feds undermine                                                               
the sovereign  rights of  our state to  manage our  resources and                                                               
the Governor rolled over - the  last Governor rolled over and, in                                                               
my opinion, violated his oath in the process...."                                                                               
                                                                                                                                
SENATOR SEEKINS  said he  was just  curious whether  any existing                                                               
contracts would violate HB 24, if it is enacted.                                                                                
                                                                                                                                
MR. WHITE again said no existing contracts would.                                                                               
                                                                                                                                
SENATOR  WAGONER  asked   Representative  Weyhrauch  whether  the                                                               
lifetime permits in  Glacier Bay include the  halibut fishery and                                                               
whether  they  are  transferable  or restricted  to  the  current                                                               
owners.  He questioned  whether [Congress]  made a  withdrawal so                                                               
that the  state will never again  be able to go  into Glacier Bay                                                               
and harvest its resources.                                                                                                      
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH  said  the congressional  action  means                                                               
that no  more commercial  fishing operations  will take  place in                                                               
Glacier  Bay.  Sport  fishing,  charter  fishing,  cruise  ships,                                                               
kayaking and hiking,  among other activities, will  be allowed in                                                               
Glacier Bay.                                                                                                                    
                                                                                                                                
SENATOR  BEN STEVENS  said he  believes the  permit holders  were                                                               
compensated as well.                                                                                                            
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH  told  members  that  $23  million  was                                                               
awarded  to people  who made  claims for  compensation under  the                                                               
portion  of  the congressional  act  that  closed and  restricted                                                               
commercial  fishing in  Glacier Bay.  Those commercial  fishermen                                                               
who  received  lifetime  access  permits  may  or  may  not  have                                                               
received  compensation; they  could have  applied. Some  lifetime                                                               
access permit  holders applied but  were denied  either initially                                                               
or because they  initially obtained money but  were then reversed                                                               
to  zero on  appeal because  the National  Park Service  tinkered                                                               
with the numbers for the compensation program.                                                                                  
                                                                                                                                
SENATOR  BEN STEVENS  stated, "If  the federal  government had  a                                                               
clause like  this in  their law,  the FMPs  [Fisheries Management                                                               
Plans] and North Pacific and  civil co-management agreements that                                                               
we manage for the feds now would not be able to exist."                                                                         
                                                                                                                                
REPRESENTATIVE   WEYHRAUCH  said   outside   of  the   three-mile                                                               
boundaries, those  could still exist,  particularly for  the crab                                                               
FMP  in  the  Bering  Sea.   The  State  of  Alaska  and  federal                                                               
government could still enter  into those co-management agreements                                                               
because that  is a federally  managed resource. The intent  of HB
24  is to  address state  waters and  to say  if a  co-management                                                               
agreement  cedes  management   or  jurisdiction  unauthorized  by                                                               
statute or  the Alaska  Constitution, an  agreement could  not be                                                               
made by contract.                                                                                                               
                                                                                                                                
SENATOR BEN STEVENS said if the  table was turned and the federal                                                               
government could not cede management  authority to the state, the                                                               
state  could  not enter  into  a  management agreement  with  the                                                               
federal government.                                                                                                             
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH  said the  state  could  enter into  an                                                               
agreement with the federal government  if the State of Alaska had                                                               
a claim  over the management  and jurisdiction  by constitutional                                                               
right.  That   jurisdiction  would  exist  no   matter  what  the                                                               
management  agreement  said.  The  jurisdiction  and  management,                                                               
whether federal or  state, still exist. If the state  has a claim                                                               
on  the management  and jurisdiction  over  those fishing  rights                                                               
under law, it could not give those away by contract.                                                                            
                                                                                                                                
SENATOR  BEN STEVENS  asked  if  the state  could  not give  away                                                               
management by contract.                                                                                                         
                                                                                                                                
REPRESENTATIVE WEYHRAUCH replied:                                                                                               
                                                                                                                                
     It can't  give it away -  it can't say we  give you the                                                                    
     right  to  have  management  and  jurisdiction  of  our                                                                    
     resources by  contract because  if that  was prohibited                                                                    
     by Constitution or statute, the  state couldn't give it                                                                    
     away  by   contract.  The  state  couldn't   cede  that                                                                    
     jurisdiction by contract what it  can't cede now by law                                                                    
     or Constitution.  So, by entering into  a co-management                                                                    
     agreement, or - if you  want to call it a co-management                                                                    
     agreement -  an agreement  with the  federal government                                                                    
     of  federal  fisheries,  the  state  isn't  ceding  any                                                                    
     jurisdiction over  those fishery resources  because the                                                                    
     state  by Constitution  doesn't have  jurisdiction over                                                                    
     those resources. It's a federal resource.                                                                                  
                                                                                                                                
SENATOR BEN  STEVENS said  he was suggesting  a role  reversal so                                                               
the federal government could not  cede its authority to manage to                                                               
the  state.  The  state manages  federal  resources,  in  certain                                                               
instances, but the state would not be able to cede to them.                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  said the state could  allow the federal                                                               
government  to manage  the resource  in the  state. CSHB  24(JUD)                                                               
would  prohibit any  assertion that  the state  has given  up its                                                               
management and jurisdiction over  those resources by contract. If                                                               
the state has a dispute with  the federal government over who has                                                               
the right,  the federal  government could not  claim it  in court                                                               
via  the  contract.  The contract  cannot  override  the  state's                                                               
plenary  ability  to  manage  and   have  jurisdiction  over  the                                                               
resources and nothing by contract diminishes the legal argument.                                                                
                                                                                                                                
SENATOR  SEEKINS  said  he  believes  Representative  Weyhrauch's                                                               
argument parallels  a decision in  an early 1990s case  named New                                                               
York  State  versus  United  States  of  America.  That  decision                                                               
basically said  a sovereign cannot  realign the  boundary between                                                               
these  sovereigns by  agreement.  It  would have  to  be done  by                                                               
constitutional amendment.                                                                                                       
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH added,  "Or  to say  that  we have  the                                                               
legal authority to do that - nothing diminishes that."                                                                          
                                                                                                                                
SENATOR SEEKINS agreed and said  CSHB 24(JUD) is a restatement of                                                               
that decision. He said he likes  that approach because it is also                                                               
consistent with the  Dinkum Sands case. He asked if  the State of                                                               
Alaska is  involved in a [U.S.]  Supreme Court case right  now on                                                               
the ownership of the submerged lands in Glacier Bay.                                                                            
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  said that case is  Alaska versus United                                                               
States, which is  a quiet title action filed in  the U.S. Supreme                                                               
Court.                                                                                                                          
                                                                                                                                
SENATOR  SEEKINS  asked  if  CSHB 24(JUD)  merely  says  that  no                                                               
agreement the state enters into affects its sovereign control.                                                                  
                                                                                                                                
REPRESENTATIVE WEYHRAUCH said that is  correct. He noted that Mr.                                                               
Somerville  has provided  him  with several  examples  of how  it                                                               
works with the federal fisheries.                                                                                               
                                                                                                                                
SENATOR  SEEKINS maintained  that CSHB  24(JUD) will  not prevent                                                               
the  state  from  entering  into  a  contract  with  the  federal                                                               
government. It  just allows the  federal government to  manage if                                                               
it has  the manpower  and will  but it  retains ownership  by the                                                               
state.                                                                                                                          
                                                                                                                                
CHAIR OGAN said  his concern in the past has  been that the state                                                               
has been  terribly inconsistent with assertion  of sovereignty on                                                               
navigable waters. He commented:                                                                                                 
                                                                                                                                
     We're saying on one hand  we want to assert sovereignty                                                                    
     in Glacier Bay  because we all agree on  that one. But,                                                                    
     losing  by  default by  not  appealing  to the  Supreme                                                                    
     Court,  we  gave up  sovereignty  of  the rest  of  the                                                                    
     submerged  lands -  it's a  pretty schizophrenic  state                                                                    
     position  and   set  a  terrible  precedent   and  it's                                                                    
     probably one of the reasons we're here now.                                                                                
                                                                                                                                
SENATOR  BEN  STEVENS  pointed  out  that  the  reference  to  AS                                                               
16.20.010, on page 2, line  5, relates to legislative recognition                                                               
of  a  state  game  refuge.   [Section  1]  says  the  state  has                                                               
jurisdiction over all fish and game  in the state except in those                                                               
areas where it has assented to  federal control but the state has                                                               
not assented to control of fish  and game in Glacier Bay National                                                               
Park.                                                                                                                           
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  asked that Mr. Somerville  address some                                                               
of the federal issues that Senator Stevens raised.                                                                              
                                                                                                                                
MR. RON  SOMERVILLE, advisor  on natural  resource issues  to the                                                               
House  and Senate  Majorities, told  members that  the state  has                                                               
concurrent jurisdiction  but it can adopt  regulations within the                                                               
regulations  adopted by  the federal  agencies related  to marine                                                               
mammals, waterfowl, and halibut. In  other cases, such as federal                                                               
jurisdiction  beyond the  state's  waters,  the federal  agencies                                                               
delegate authority to  manage those areas; they do  not cede that                                                               
authority to the  state. The federal government  allows the state                                                               
to  manage  halibut  under  the  treaty, but  it  has  not  ceded                                                               
authority to the state.                                                                                                         
                                                                                                                                
CHAIR  OGAN remarked,  "In  other  words, we  roll  over but  not                                                               
without kicking a little bit."                                                                                                  
                                                                                                                                
MR. SOMERVILLE  said that is one  way of putting it  but, in some                                                               
cases, such  as with  marine mammals, the  state is  preempted so                                                               
anything  it   gets  at  the   preemption  process   the  federal                                                               
government can delegate back to the state.                                                                                      
                                                                                                                                
SENATOR  SEEKINS  asked if  the  supremacy  clause overrides  the                                                               
state in the management of fish and game in state waters.                                                                       
                                                                                                                                
REPRESENTATIVE WEYHRAUCH said  the State of Alaska  came into the                                                               
Union with the promise that it  would be on an equal footing with                                                               
other states. That  was affirmed in a Utah lands  case before the                                                               
U.S. Supreme Court.  The state was in a constant  battle with the                                                               
federal government to  assert that it should be  on equal footing                                                               
with the  other states and  colonies and that Alaska  should have                                                               
control and  management over  its submerged  lands and  waters at                                                               
statehood.  That  has  been  a defining  moment  in  the  state's                                                               
history  and the  dispute will  continue of  who should  control,                                                               
own,  manage and  have use  of  lands in  the state.  He said  he                                                               
cannot answer Senator Seekins' question  but he is very concerned                                                               
about the issue.  He repeated that the intent  of the legislation                                                               
is to  make it clear that  no agent of  the state, who is  not an                                                               
elected  official,   or  through  constitutional   and  statutory                                                               
amendment,  is   allowed  to  diminish   our  ability   to  claim                                                               
management and jurisdiction of our resources.                                                                                   
                                                                                                                                
CHAIR OGAN  commented that the  state not only gained  control of                                                               
submerged lands [at statehood] but  it also gained title to those                                                               
submerged  lands. The  equal footing  provision was  specifically                                                               
included  in  the  Statehood  Act:  the  quitclaim  of  title  to                                                               
submerged lands  and with it  the right  to control not  only the                                                               
lands but the water columns and fish and game in it.                                                                            
                                                                                                                                
REPRESENTATIVE WEYHRAUCH clarified that  title case is before the                                                               
U.S. Supreme Court's master at this time.                                                                                       
                                                                                                                                
CHAIR OGAN  stated, "But  the goofy ruling  of the  Ninth Circuit                                                               
saying  the  reserved  water  rights   doctrine  -  because  this                                                               
molecule of water  ran across federal lands somehow  gets them to                                                               
control all of the fishing  downstream, is what the last Governor                                                               
dropped the ball on."                                                                                                           
                                                                                                                                
SENATOR  SEEKINS asked  if the  Statehood Act  provided that  the                                                               
State of Alaska  was the beneficiary of the  1953 Submerged Lands                                                               
Act in equal footing with all other states.                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH said he could not answer that question.                                                                
                                                                                                                                
SENATOR SEEKINS said it is his understanding that it did.                                                                       
                                                                                                                                
SENATOR BEN STEVENS asked why  AS 16.20.010 is referenced on page                                                               
2 since it has no definition of management.                                                                                     
                                                                                                                                
SENATOR SEEKINS pointed  out the words, "added by Sec.  1 of this                                                               
Act." follow.                                                                                                                   
                                                                                                                                
SENATOR  BEN STEVENS  said his  point  is that  the language  [in                                                               
Section 1] is restricted to  AS 16.20.010, which pertains only to                                                               
Glacier Bay.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH  said  he  continually  queried  George                                                               
Utermohle,  who  drafted  the  legislation,  about  Sec.  2.  Mr.                                                               
Utermohle said  Sec. 2  was necessary  as a  transitory provision                                                               
for existing agreements  and was "phase-out" language  to put the                                                               
agencies  on notice.  He said  the "meat"  of the  legislation is                                                               
Sec.1, which addresses management.                                                                                              
                                                                                                                                
SENATOR BEN  STEVENS said the  way he reads the  bill, subsection                                                               
(c) only applies to AS 16.20.010.                                                                                               
                                                                                                                                
REPRESENTATIVE WEYHRAUCH said that is correct.                                                                                  
                                                                                                                                
SENATOR BEN  STEVENS said then all  of the talk about  other fish                                                               
and  game on  state lands  does  not apply  because AS  16.20.010                                                               
applies  only to  Glacier Bay  National Park,  bird and  national                                                               
wildlife  refuges or  navigable  waters within  or adjoining  the                                                               
park and preserve.                                                                                                              
                                                                                                                                
REPRESENTATIVE WEYHRAUCH replied:                                                                                               
                                                                                                                                
     ...what  happened  in  this committee  is  exactly  the                                                                    
     dynamic that happened in  House Judiciary, where people                                                                    
     wanted to  make it  very broad  and the  discussion got                                                                    
     very  broad and  philosophical and  you bring  in every                                                                    
     agency  and every  agreement. But  the  intent of  this                                                                    
     bill was  to deal with the  co-management agreements in                                                                    
     Glacier Bay  National Park and  S 501 by  Senator Frank                                                                    
     Murkowski,  which   required  co-management  agreements                                                                    
     between the state and federal government.                                                                                  
                                                                                                                                
MR.  SOMERVILLE  said Senator  Stevens  is  correct in  that  the                                                               
sponsor's intent was to cover Glacier Bay and the mandatory co-                                                                 
management agreements.   The  request of  the House  committee to                                                               
expand it to include all state  lands and waters should have been                                                               
placed in a separate section.                                                                                                   
                                                                                                                                
SENATOR BEN STEVENS said that is what he was trying to clarify.                                                                 
                                                                                                                                
REPRESENTATIVE   WEYHRAUCH   told   members  that   the   [House]                                                               
committees wanted to make the  bill apply to every agreement with                                                               
every agency.  However, that  would have  made the  bill unwieldy                                                               
and  could  have  harmed  some   of  the  potentially  beneficial                                                               
ministerial contracts  the state  has entered  into. He  said the                                                               
focus was  on Glacier Bay  because of  S 501, which  mandated co-                                                               
management  agreements with  the  state. He  believes the  Alaska                                                               
Department  of  Fish  and  Game   should  never  cede  management                                                               
jurisdiction that  might somehow decrease the  state's ability to                                                               
defend it later in court.                                                                                                       
                                                                                                                                
SENATOR  DYSON  said he  appreciates  the  sponsor's efforts  and                                                               
believes the legislation  is narrowly aimed and  well crafted. He                                                               
said his  last comment characterized the  feelings of legislators                                                               
in that they  would all like to expand the  legislation but it is                                                               
inappropriate to do  so at this time. He then  moved CSHB 24(JUD)                                                               
out  of committee  with individual  recommendations and  its zero                                                               
fiscal note.                                                                                                                    
                                                                                                                                
CHAIR OGAN announced that without  objection, the motion carried.                                                               
He then announced an at-ease.                                                                                                   
                                                                                                                                
         CS SSHB 28(FIN)-OIL & GAS ROYALTY MODIFICATION                                                                     
                                                                                                                                
REPRESENTATIVE NORM  ROKEBERG, co-sponsor of HB  28, told members                                                               
that HB  28 is a  "tune-up" of  AS 38.05.180(j). That  section of                                                               
statute pertains to royalty modifications  of marginal fields. In                                                               
1995, the new Governor brought  forth this legislation as a major                                                               
centerpiece  of  his  Administration   to  try  to  increase  oil                                                               
production in  Alaska. That bill was  crafted in such a  way that                                                               
it created impossible barriers for  it to work. During that nine-                                                               
year period, no grants of  royalty reduction have been granted by                                                               
the state.  This bill modifies  that statutory section  to remove                                                               
some  of  those  barriers  and it  simplifies  the  language.  He                                                               
directed members' attention to the  language on page 2, beginning                                                               
on line 24. That particular  language embodies, in one paragraph,                                                               
the discretionary ability of the  commissioner to grant a royalty                                                               
modification  under  the terms  set  forward  in it.  It  deletes                                                               
language  that  indicates  that  if  a  royalty  modification  is                                                               
granted, the state  would have to ultimately  recover. The intent                                                               
was to  increase oil exploration  but it required that  the state                                                               
recover its  money even  though it  was reopening  a dry  hole by                                                               
royalty reductions.  He said  the provisions  of the  bill became                                                               
almost unintelligible.                                                                                                          
                                                                                                                                
TAPE 03-49, SIDE B                                                                                                            
                                                                                                                                
REPRESENTATIVE  ROKEBERG said  HB  28 removes  that language  and                                                               
provides  for a  sliding scale  royalty to  be determined  by the                                                               
commissioner who,  under the Constitution,  must act in  the best                                                               
interest  of the  state.  It provides  that  relevant factors  be                                                               
taken into  consideration, such as a  change in the price  of oil                                                               
and  gas,  in  production rates,  production  ultimate  recovery,                                                               
development costs  and operating  costs. Therefore, if  the price                                                               
of oil  increases, the state's  share will increase on  a sliding                                                               
scale basis.  It contains  other provisions  that remove  some of                                                               
the   oversight.  He   said  the   Administration  supports   the                                                               
legislation.                                                                                                                    
                                                                                                                                
CHAIR  OGAN said  he instantly  recognized this  legislation from                                                               
his participation on  the House Oil and Gas  Committee years ago.                                                               
He asked if there has been any use of the statute.                                                                              
                                                                                                                                
REPRESENTATIVE  ROKEBERG  said  there was  one  application  from                                                               
Unocal that did not go  through. Although the public believes the                                                               
legislature gave  big incentives to  the oil industry,  the North                                                               
Star modification  was the only  thing that occurred.  He pointed                                                               
out that  other specific royalty  bills targeted  certain fields,                                                               
particularly  in the  Cook Inlet  area,  that had  to be  enacted                                                               
because the statute did not work.                                                                                               
                                                                                                                                
11:30 a.m.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  VIC KOHRING,  co-sponsor of  HB 28,  told members                                                               
the sliding  scale would  likely be between  3 and  12.5 percent.                                                               
The general royalty rate has  been 12.5 percent. The commissioner                                                               
is  granted discretion  to determine  the rate.  The commissioner                                                               
can  make  that decision  based  on  an in-house  evaluation,  or                                                               
through an  independent contractor. The evaluation  will consider                                                               
operating costs, field recovery, production rate and volume.                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG commented that  the fiscal note indicates                                                               
program receipts at $150,000. He stated:                                                                                        
                                                                                                                                
     I caution you  - it's just program  receipts because of                                                                    
     the requirement  of a maximum ceiling  on any applicant                                                                    
     where  they   can  hire   a  third   party  consultant.                                                                    
     Actually,  I think  the fiscal  note's not  correct. It                                                                    
     should  be  a zero  fiscal  note.  Only if  there's  an                                                                    
     application  would   there  be  any   program  receipts                                                                    
     generated. So  I just  wanted to  point that  out. This                                                                    
     bill is not going to cost  the state anything - only in                                                                    
     foregone  royalties   that  we  wouldn't   perhaps  get                                                                    
     otherwise if  they're bringing a  shut-in well  back on                                                                    
     production.                                                                                                                
                                                                                                                                
MR. KEN BOYD,  an oil and gas consultant, said  he was testifying                                                               
on  behalf of  the  Alaska  Oil and  Gas  Association (AOGA).  He                                                               
stated support for CS SSHB  28(FIN) and said he participated with                                                               
Representative Rokeberg and  Senator Ogan and a  cast of hundreds                                                               
seven or eight years ago who  worked on the existing law. He said                                                               
the  current royalty  reduction statute  is awkwardly  worded and                                                               
very difficult to implement.                                                                                                    
                                                                                                                                
SENATOR SEEKINS asked  if a model already exists  for the sliding                                                               
scale  or  whether  this  bill will  give  the  commissioner  the                                                               
discretion to set a sliding scale for each particular field.                                                                    
                                                                                                                                
REPRESENTATIVE  KOHRING said  it is  his understanding  this bill                                                               
gives the commissioner that discretion.  He deferred to Mr. Myers                                                               
for an answer about an existing model.                                                                                          
                                                                                                                                
SENATOR SEEKINS  asked if  a cap exists  for the  state's overall                                                               
agreement  with an  oil  company  or whether  there  is a  seller                                                               
price.                                                                                                                          
                                                                                                                                
MR. KEVIN BANKS,  Division of Oil and Gas,  Department of Natural                                                               
Resources (DNR) said, regarding whether  a model exists, DNR uses                                                               
fairly standard  discount cash-flow  models. DNR would  more than                                                               
likely tailor a sliding scale  royalty provision to the specifics                                                               
of each applicant. He said he  can't say the bill contains a cap.                                                               
DNR could conceivably trade a  12.5 percent royalty for a royalty                                                               
modification that would  allow for some sliding  scale that could                                                               
exceed, in rare  instances, the 12.5 percent  rate. However, that                                                               
would depend  upon the kind  of project  and the unknowns  at the                                                               
time of application.                                                                                                            
                                                                                                                                
SENATOR SEEKINS asked  if the oil companies will  pay more during                                                               
the "boon" years.                                                                                                               
                                                                                                                                
CHAIR OGAN  said as memory serves  him, he believes there  was an                                                               
upside in the original legislation.                                                                                             
                                                                                                                                
MR. BANKS  said the  original HB  207 contained  some complicated                                                               
language that directed the commissioner  to develop a system that                                                               
would pick  up on  the upside. Unfortunately,  it was  written so                                                               
that it  removed any projected  royalty modification  benefits to                                                               
the  applicant.   In  CS  SSHB  28(FIN),   the  commissioner  can                                                               
negotiate an upside but is not required  to do so. He said he can                                                               
think of cases  where a sliding scale between 3  and 12.5 percent                                                               
would  provide sufficient  incentive to  get production  on line.                                                               
The  state's reward  for giving  up some  of its  royalty on  the                                                               
front end would be to get more production out of the prospect.                                                                  
                                                                                                                                
CHAIR OGAN  said subsection (3) on  line 24, page 2,  seems to be                                                               
the key  to the  legislation. It says  "sliding scale  royalty or                                                               
other mechanism" so it provides  broad latitude. He added that it                                                               
provides for an  increase or decrease and asked if  it gives that                                                               
discretion to the commissioner.                                                                                                 
                                                                                                                                
MR. BANKS said that is correct.                                                                                                 
                                                                                                                                
SENATOR BEN STEVENS asked if  this legislation prevents or allows                                                               
the commissioner  to make rate adjustments  to specific platforms                                                               
[in   Cook  Inlet]   without  coming   to  the   legislature  for                                                               
legislation.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KOHRING   said  the   answer  is  yes   but  this                                                               
legislation does  not apply  to platforms. He  noted that  SB 185                                                               
pertains  to platform  royalty reduction  and  differs from  this                                                               
legislation. He explained  that the intent of CS  SSHB 28(JUD) is                                                               
to  encourage  the industry  to  develop  three types  of  fields                                                               
because they are not profitable:  new fields, existing fields, or                                                               
mothballed fields.                                                                                                              
                                                                                                                                
SENATOR  BEN STEVENS  said if  this legislation  is not  enacted,                                                               
separate pieces of legislation would  be brought forward, such as                                                               
SB 185, asking  for royalty rate reductions  for specific fields.                                                               
He  said   instead,  CS  SSHB  28(JUD)   defers  all  legislative                                                               
authority for rate reductions to the commissioner.                                                                              
                                                                                                                                
REPRESENTATIVE KOHRING said that  is correct, for marginal fields                                                               
only. He said the legislation  is not specific to certain fields;                                                               
it  applies  to   any  field  in  the  state   considered  to  be                                                               
unprofitable. He  said the commissioner will  determine whether a                                                               
field is profitable after doing an analysis of each field.                                                                      
                                                                                                                                
SENATOR BEN  STEVENS asked  Mr. Myers to  describe what  kinds of                                                               
fields fall under those three categories.                                                                                       
                                                                                                                                
MR. MARK  MYERS, Director of  the Division  of Oil and  Gas, DNR,                                                               
told  members  this bill  amends  an  existing royalty  reduction                                                               
statute.  It  does  not  create  a new  program;  it  fixes  some                                                               
problems in the  existing statute. That statute  was modified but                                                               
the  last set  of modifications  created unintended  consequences                                                               
that  were   problematic.  CS  SSHB  28(JUD)   applies  in  three                                                               
situations: to  new fields that  are not economic  where reducing                                                               
the state's royalty  share would make the field go;  to fields in                                                               
a  later stage  of production  where operating  costs exceed  the                                                               
value  of production;  and to  fields that  have been  physically                                                               
shut in so  there is no production flowing.  Reducing the royalty                                                               
would change  the economics sufficiently  to start  up production                                                               
of  the field  again.  This  bill gives  broad  authority to  the                                                               
commissioner to set terms to recapture upside.                                                                                  
                                                                                                                                
MR.  MYERS said  once a  field is  in development,  a few  things                                                               
might improve  its economics  - operating  costs remain  the same                                                               
but  an increase  in oil  prices creates  a dramatic  increase in                                                               
profits. Under  this bill,  rising oil  prices can  be structured                                                               
into the  royalty rates. Second, if  production itself increases,                                                               
which is only likely in a  new field, the state needs a mechanism                                                               
to capture  the upside as  more data  comes in. This  bill allows                                                               
for all  of the adjustments by  giving the commissioner a  lot of                                                               
flexibility.  However, the  agreements still  require legislative                                                               
approval.  He said  an example  of  a field  that is  not yet  in                                                               
production would  be the small  field at  Umiat; a field  that is                                                               
producing but is  close to shut-in is Badami,  which is currently                                                               
producing  about  1400 barrels  per  day.  He  said SB  185,  the                                                               
platform bill,  addresses a unique  set of circumstances  in Cook                                                               
Inlet  where  some  fields  are  late  in  life  with  a  30-year                                                               
production history. DNR was comfortable  with the data about that                                                               
area  and did  not  feel it  needed a  mechanism  to recover  the                                                               
upside. That legislation contains  a customized approach for Cook                                                               
Inlet  platforms  that do  not  require  this same  process.  The                                                               
advantage of  that approach  is to  retain the  infrastructure in                                                               
Cook Inlet.                                                                                                                     
                                                                                                                                
SENATOR  WAGONER  asked  how  CS   SSHB  28(FIN)  will  apply  to                                                               
abandoned oil wells.                                                                                                            
                                                                                                                                
MR.  MYERS  said they  could  fall  under all  three  categories,                                                               
because of  the term "field or  pool." A deeper reservoir  of oil                                                               
under  a shallow  gas reservoir  could be  a separate  reservoir.                                                               
Depending on whether  that gas had been produced  before by field                                                               
or pool, it  could qualify under any of the  three categories. He                                                               
said the  operator would have  to justify that the  economics did                                                               
not  support   operation  without   the  royalty   reduction.  He                                                               
explained that  the process for approving  the royalty reductions                                                               
would be  a little different.  The preliminary decision  would be                                                               
submitted to  the legislature during  the public  comment period,                                                               
however  the  legislature  does   not  vote  to  approve  royalty                                                               
reduction under this bill.                                                                                                      
                                                                                                                                
SENATOR BEN STEVENS asked if that provision is in Section 8.                                                                    
                                                                                                                                
MR. MYERS said that is correct.                                                                                                 
                                                                                                                                
CHAIR OGAN  pointed out  there is  a $150,000  cap on  the amount                                                               
that can be  paid by the lessees and asked  whether that reflects                                                               
program receipts. He also asked  if that amount is appropriate or                                                               
whether it will cost DNR more than $150,000 to administer.                                                                      
                                                                                                                                
MR.  MYERS said  that money  would  come from  the applicants  so                                                               
there should  be no additional cost  to the state if  the program                                                               
receipts are authorized. He said  that amount was negotiated with                                                               
the sponsor and he cannot say  whether it is totally adequate. In                                                               
the  past,  all  of  the royalty  reduction  requests  have  been                                                               
handled internally.  DNR recognizes that  a lot of  analysis will                                                               
have to  be done on new  fields, where little data  is available.                                                               
DNR believes $150,000 is an adequate amount.                                                                                    
                                                                                                                                
CHAIR OGAN  asked what  fields this  might apply  to. He  noted a                                                               
bill just passed the Senate  that deals with severance tax breaks                                                               
for  certain  wells.   He  questioned  how  the   two  pieces  of                                                               
legislation  dovetail and  whether  CS SSHB  28(FIN) is  targeted                                                               
toward heavy oil.                                                                                                               
                                                                                                                                
MR. MYERS  said it is  targeted at  any producing field.  He said                                                               
fields go  through various  stages. At a  field's end  stage, the                                                               
operator   and  the   state  must   determine  when   it  becomes                                                               
uneconomic.  He said  royalty reductions  are truly  effective at                                                               
the  very  tail end  of  declining  production. He  expects  this                                                               
legislation to  eventually apply to  all fields in the  state. He                                                               
pointed out  in the  other cases,  DNR will have  to look  at the                                                               
individual economics  of each field.  He said with heavy  oil, as                                                               
the technology  changes, the economics have  vastly improved. DNR                                                               
would have to take a serious  look at the detailed economics, the                                                               
engineering  and  the  reservoir.  He  indicated  the  heavy  oil                                                               
reserves  are just  being tapped  now  and are  in their  initial                                                               
stages of  production. He pointed  out the  exploration incentive                                                               
is specifically  crafted to not  include wells within  units that                                                               
are producing or any units that have a plan of development.                                                                     
                                                                                                                                
SENATOR DYSON asked if anyone is opposed to CS SSHB 28(FIN).                                                                    
                                                                                                                                
MR. MYERS said he is not aware of anyone.                                                                                       
                                                                                                                                
REPRESENTATIVE KOHRING  said he was  not aware of  anyone either.                                                               
The bill  had three committee referrals  in the House and  he did                                                               
not recall any negative testimony.                                                                                              
                                                                                                                                
CHAIR OGAN  noted this bill  is extensive  and he has  some angst                                                               
about the short timeframe for study.  He asked Mr. Myers if he is                                                               
aware of any flaws that committee members' may not be aware of.                                                                 
                                                                                                                                
MR.  MYERS  said  he  believes the  bill  improves  the  process.                                                               
Although  compromises are  made in  every bill,  he believes  the                                                               
compromises are balanced and that  the interests of the state are                                                               
well protected.                                                                                                                 
                                                                                                                                
SENATOR  WAGONER   asked  if  Swanson   River  has   any  royalty                                                               
incentives right now.                                                                                                           
                                                                                                                                
MR. MYERS said  he believes Swanson River is  primarily a federal                                                               
unit.                                                                                                                           
                                                                                                                                
SENATOR BEN  STEVENS noted that  Mr. Myers said  that application                                                               
is  determined on  the end  of life  determination of  the field,                                                               
which he  believes is a trigger  to the possibility of  a royalty                                                               
reduction. He  expressed concern  that any  operator could  say a                                                               
field is  at the end of  production life. He asked  how DNR would                                                               
determine whether a field is at end of life.                                                                                    
                                                                                                                                
MR.  MYERS said  this  bill allows  those  royalty reductions  to                                                               
occur at any  stage of a field's life but,  to determine the true                                                               
economics of  a field takes a  lot of work and  is more difficult                                                               
the further  it is  from the  end of field  because later  in the                                                               
field life  there are more  well and seismic data  and production                                                               
profiles. He  said the  calculation is  very technical,  which is                                                               
why the fiscal note contains funds for outside experts.                                                                         
                                                                                                                                
CHAIR OGAN asked why the language  on page 2, lines 5-9, is being                                                               
deleted. He stated:                                                                                                             
                                                                                                                                
     I remember  we had  a lot of  discussion with  the bill                                                                    
     that  originally passed  about delineation  of the  oil                                                                    
     and gas  field or pool  and, instead of  delineating it                                                                    
     to allow  the commissioner  to conduct an  analysis and                                                                    
     make  the findings  required by  the subsection,  we're                                                                    
     eliminating - we're just letting  them delineate to the                                                                    
     satisfaction  of the  commissioner and  it doesn't  say                                                                    
     anything about findings. Why are we doing that?                                                                            
                                                                                                                                
MR.  MYERS said  they  wanted the  delineation to  be  done on  a                                                               
technical basis. Representative Rokeberg  was concerned about the                                                               
level of legislative input and  cleaning up the cumbersome nature                                                               
of  the  mechanism.  He  said   the  original  royalty  reduction                                                               
required two years of production. There  was a push at that time,                                                               
primarily by  BP, to allow  a reduction before  production start-                                                               
up.  BP  then  asked  for the  royalty  reduction.  However,  the                                                               
reality is  that some  production is  necessary to  determine the                                                               
economics  of the  field. The  legislature at  that time  said as                                                               
long as the  reservoir was delineated, it was willing  to grant a                                                               
royalty reduction.  He said this  bill establishes  the necessary                                                               
level of  data and  who gets  to decide  whether a  reservoir has                                                               
been sufficiently delineated.                                                                                                   
                                                                                                                                
CHAIR OGAN said  the bill contains no sunset  data or requirement                                                               
to report to the legislature.                                                                                                   
                                                                                                                                
MR. MYERS clarified that  the commissioner's preliminary decision                                                               
will be presented to the  legislature. The House amended the bill                                                               
to provide the legislature with access to confidential data.                                                                    
                                                                                                                                
REPRESENTATIVE   VIC  KOHRING   said   regarding  the   potential                                                               
Permanent Fund earnings  that this bill will  generate, this bill                                                               
essentially  deals  with  three  fields. Two  are  not  producing                                                               
anything at  all. One way  to look at  the economics is  that the                                                               
state could  get 12.5 percent  of nothing, or  3 or 7  percent of                                                               
something, by virtue of the sliding scale.                                                                                      
                                                                                                                                
CHAIR  OGAN asked  if there  is as  much known  heavy oil  on the                                                               
North Slope as has already been discovered.                                                                                     
                                                                                                                                
MR. MYERS  said that  is correct but  the recoverability  of that                                                               
heavy oil will be much lower, probably 10 to 15 percent.                                                                        
                                                                                                                                
MR.  KEVIN TABLER,  Manager of  Land and  Government Affairs  for                                                               
Unocal,  stated support  for CS  SSHB 28(FIN).  He said  it is  a                                                               
substantial  improvement  to the  1995  legislation,  in that  it                                                               
provides clarification and predictability for an applicant.                                                                     
                                                                                                                                
CHAIR  OGAN asked  Mr. Tabler  if  Unocal applied  for a  royalty                                                               
reduction but did not complete the process.                                                                                     
                                                                                                                                
MR.  TABLER  said  Unocal  pulled  out  after  18  months  and  a                                                               
significant amount of cost.                                                                                                     
                                                                                                                                
CHAIR OGAN commented  this bill is extensive,  however the policy                                                               
decision  to allow  royalty  reduction was  already  made by  the                                                               
legislature.                                                                                                                    
                                                                                                                                
SENATOR  WAGONER  moved  CS  SSHB  28(FIN)  from  committee  with                                                               
individual recommendations and its attached fiscal note.                                                                        
                                                                                                                                
CHAIR OGAN announced that without  objection, the motion carried.                                                               
He then  recessed the meeting to  the call of the  Chair at 12:10                                                               
p.m.                                                                                                                            
                                                                                                                                
On May 20, 2003, at 6:21  p.m., CHAIR OGAN reconvened the meeting                                                               
for  the purpose  of announcing  that the  committee meeting  was                                                               
adjourned.                                                                                                                      

Document Name Date/Time Subjects