Legislature(2003 - 2004)

02/04/2004 03:34 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                        February 4, 2004                                                                                        
                           3:34 p.m.                                                                                            
                                                                                                                                
TAPE(S) 04-6                                                                                                                  
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Scott Ogan, Chair                                                                                                       
Senator Thomas Wagoner, Vice Chair                                                                                              
Senator Fred Dyson                                                                                                              
Senator Ralph Seekins                                                                                                           
Senator Ben Stevens                                                                                                             
Senator Kim Elton                                                                                                               
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Georgianna Lincoln                                                                                                      
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 265                                                                                                             
"An Act  relating to the schedule  of proposed oil and  gas lease                                                               
sales and to  a related report to the  legislature; and providing                                                               
for an effective date."                                                                                                         
     MOVED CSSB 265(RES) OUT OF COMMITTEE                                                                                       
                                                                                                                                
SENATE BILL NO. 266                                                                                                             
"An Act  approving an interim classification  by the commissioner                                                               
of natural resources closing certain  land within the area of the                                                               
proposed Bristol  Bay (Alaska Peninsula) competitive  oil and gas                                                               
areawide  lease sale  to oil  and gas  exploration licensing  and                                                               
shallow  natural  gas leasing;  and  providing  for an  effective                                                               
date."                                                                                                                          
     MOVED SB 266 OUT OF COMMITTEE                                                                                              
                                                                                                                                
PREVIOUS ACTION                                                                                                               
                                                                                                                                
BILL: SB 265                                                                                                                  
SHORT TITLE: OIL&GAS LEASE SALE SCHEDULE/NOTIFICATION                                                                           
SENATOR(s): SENATE RULES COMMITTEE BY REQUEST OF THE GOVERNOR                                                                   
                                                                                                                                
01/14/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/14/04       (S)       RES                                                                                                    
                                                                                                                                
BILL: SB 266                                                                                                                  
SHORT TITLE: BRISTOL BAY OIL & GAS LEASE SALE CLOSURE                                                                           
SENATOR(s): SENATE RULES COMMITTEE BY REQUEST OF THE GOVERNOR                                                                   
                                                                                                                                
01/14/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/14/04       (S)       CRA, RES                                                                                               
02/02/04       (S)       CRA AT 1:30 PM FAHRENKAMP 203                                                                          
02/02/04       (S)       Moved SB 266 Out of Committee                                                                          
02/02/04       (S)       MINUTES (CRA)                                                                                          
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
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: Presented SB 265 and SB 266 to the committee                                                              
and supported amendment to include deadline for legislative                                                                     
notification                                                                                                                    
                                                                                                                                
Mr. Tom Hawkins                                                                                                                 
Senior Vice President                                                                                                           
Bristol Bay Native Corporation                                                                                                  
800 Cordova Street Suite 200                                                                                                    
Anchorage, AK                                                                                                                   
POSITION STATEMENT: Supports SB 265 and SB 266                                                                                
                                                                                                                                
Mr. Terry Hoefferle                                                                                                             
Chief Executive Officer                                                                                                         
Bristol Bay Native Association                                                                                                  
PO Box 310                                                                                                                      
Dillingham, AK 99576                                                                                                            
POSITION STATEMENT: Supports SB 265 and SB 266                                                                                
                                                                                                                                
Mr. Bryce Edgmon                                                                                                                
Chief Operating Officer                                                                                                         
Bristol Bay Economic Development Corporation                                                                                    
104 Main Street, Suite 305                                                                                                      
P.O. Box 1464                                                                                                                   
Dillingham, Alaska 99576                                                                                                        
POSITION STATEMENT: Supports SB 265 and SB 266                                                                                
                                                                                                                                
Mr. Nels Anderson Jr.                                                                                                           
Dillingham, AK                                                                                                                  
POSITION STATEMENT: Supports SB 265 and SB 266                                                                                
                                                                                                                                
Mr. Hjalmar Olson                                                                                                               
Bristol Bay Native Corporation                                                                                                  
800 Cordova Street Suite 200                                                                                                    
Anchorage, AK                                                                                                                   
POSITION STATEMENT:  Supports SB 265 and SB 266                                                                               
                                                                                                                                
Ms. Marie Crosley                                                                                                               
Division of Oil and Gas                                                                                                         
Department of Natural Resources                                                                                                 
550 W. 7th Ave. Ste 800                                                                                                         
Anchorage AK 99501-3560                                                                                                         
POSITION STATEMENT:  Answered questions about  SB 265 and  SB 266                                                             
and  supported  amendment  to include  deadline  for  legislative                                                               
notification                                                                                                                    
                                                                                                                              
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 04-6, SIDE A                                                                                                             
                                                                                                                                
CHAIR SCOTT  OGAN called the Senate  Resources Standing Committee                                                             
meeting to  order at  3:34 p.m. All  members were  present except                                                               
Senator  Lincoln.   The  first  order  of   business  before  the                                                               
committee was SB 266. Chair Ogan asked Mr. Myers to testify.                                                                    
                                                                                                                                
        SB 266-BRISTOL BAY OIL & GAS LEASE SALE CLOSURE                                                                     
                                                                                                                                
CHAIR OGAN  asked Mr. Myers to  explain why the state  would want                                                               
to close lease sales.                                                                                                           
                                                                                                                                
MR.  MARK  MYERS,  Director  of  the Division  of  Oil  and  Gas,                                                               
Department of  Natural Resources  (DNR), told members  the reason                                                               
to close the Bristol Bay area  is that DNR currently has multiple                                                               
leasing  programs. In  the areawide-leasing  program, an  upfront                                                               
best interest  finding is  done, and  the lease  is competitively                                                               
bid and provides  grass-roots surface to grass-roots  oil and gas                                                               
mineral  rights.  A  second program,  the  exploration  licensing                                                               
program, is  competitive in nature  and allows a  single licensee                                                               
to bid  on a  work commitment  on up to  500,000 acres.  Once the                                                               
work commitment is completed, the  licensee can lease all or part                                                               
of the acreage. A third program  is shallow gas leasing: an over-                                                               
the-counter, non-competitive  program with limited  depth rights.                                                               
The  first  filing cost  is  $5,000;  it  is designed  for  areas                                                               
typically without competitive sales or exploration licensing.                                                                   
                                                                                                                                
MR. MYERS  said the  intent of  SB 266 is  to do  an oil  and gas                                                               
mineral closing  order for the  area of the proposed  Bristol Bay                                                               
competitive sale.  He cautioned that  if that area is  not closed                                                               
to mineral entry,  the area would either be  open for exploration                                                               
licensing  or shallow  gas  leases. If  shallow  gas leases  were                                                               
filed, the  mineral rights  would be split  into parts.  DNR does                                                               
not believe  that would  bring as  much value  to the  lessee and                                                               
creates correlative rights problems. He  pointed out that any gas                                                               
discovered to a  depth of 3,000 feet, if leased  with shallow gas                                                               
leasing, would  go to the shallow  gas lessee but gas  below that                                                               
depth might  go to  a different  lessee. He said  that is  not an                                                               
efficient  way  to lease  and  DNR  believes  it would  get  more                                                               
economic value  out of the  overall competitive sale.  To prepare                                                               
for  the sale  and provide  maximum value  to lessees  should the                                                               
proposed sale go  forward, DNR would like to close  this area now                                                               
to shallow gas leasing and exploration license proposals.                                                                       
                                                                                                                                
MR.  MYERS said  DNR is  doing the  opposite in  the area  to the                                                               
north and  is not  recommending it for  mineral closure.  DNR has                                                               
received  an exploration-licensing  proposal from  Bristol Shores                                                               
for  that  area.  In  conclusion,  he stated  in  the  area  with                                                               
competitive sales,  DNR doesn't  believe segregating  the mineral                                                               
estate  is   in  the   state's  best   interest.  He   noted  the                                                               
commissioner  established  a  temporary   closing  order  but  to                                                               
withstand,  it   has  to   be  verified   and  approved   by  the                                                               
legislature.                                                                                                                    
                                                                                                                                
CHAIR OGAN  asked if the  conflict over correlative  rights would                                                               
occur if Company A had a lease  for the area below 3,000 feet but                                                               
its  structure reached  into the  3,000-foot level  where shallow                                                               
gas  was found.  Company  A  might produce  the  gas  owned by  a                                                               
different lessee or DNR might have to prorate the gas.                                                                          
                                                                                                                                
MR. MYERS  said that is  correct. He noted  that part of  a field                                                               
for a  shallow gas  lease must  be above a  depth of  3,000 feet.                                                               
Some of  the geologic structures  in that area may  continue down                                                               
to deeper  depths, in which  case there would be  arguments about                                                               
whether  the deeper  lessee owned  it or  the shallow  gas lessee                                                               
owned it.  In general, DNR  tends to  not put areas  with shallow                                                               
gas leases  in license  areas because  of the  correlative rights                                                               
fight that  would ensue.  Also, in early  negotiations, if  a top                                                               
file shallow  gas lease  exists, the  state would  ultimately get                                                               
less in the  competitive bid process because a  shallow gas lease                                                               
devalues  the  competitive  lease  and sets  up  the  correlative                                                               
rights issue. He noted in  addition, a company could arguably try                                                               
to block  a sale by  artificially buying shallow gas  leases with                                                               
no   intention   of   developing  them,   thereby   significantly                                                               
decreasing the value of the [lower] lease.                                                                                      
                                                                                                                                
CHAIR OGAN  asked if anyone has  applied for a shallow  gas lease                                                               
in the [Bristol Bay] area.                                                                                                      
                                                                                                                                
MR. MYERS said not to the best of his knowledge.                                                                                
                                                                                                                                
CHAIR  OGAN  noted that  when  the  original legislation  passed,                                                               
there  was talk  of shallow  gas  that had  been identified  from                                                               
previous onshore  drilling in the  Bristol Bay area. He  asked if                                                               
that area has wells that were drilled in the 1950s.                                                                             
                                                                                                                                
MR. MYERS replied that about 26  wells were drilled in the entire                                                               
region  from 1903  to  1985.  Some were  drilled  outside of  the                                                               
proposed lease  area but about  12 wells were drilled  within the                                                               
area  proposed for  licensing. Those  wells  penetrated into  the                                                               
prospective  section; many  of them  encountered gas  but at  the                                                               
time, gas  wasn't economic.  Some of the  wells have  fairly good                                                               
shows of oil but they were  never commercially tested so DNR does                                                               
not  know the  quantity.  DNR knows  that both  oil  and gas  are                                                               
present in  the basin, particularly  in the southern part  of the                                                               
basin where  it is deeper.  To the north,  the oil thins  and DNR                                                               
expects it is  dominated by gas potential, similar to  the gas in                                                               
Cook Inlet. Much of that gas is shallow.                                                                                        
                                                                                                                                
MR.  MYERS told  members  that  DNR and  the  U.S. Department  of                                                               
Energy did  some test work  for coal  bed methane in  the Chignik                                                               
Lagoon area;  they believe coal  bed methane potential  is there.                                                               
He added that an areawide lessee  is entitled to produce coal bed                                                               
methane as  well as  deep gas so  a lessee may  look at  both. He                                                               
believes a  lessee would look  at conventional gas  first because                                                               
it is more economical.                                                                                                          
                                                                                                                                
CHAIR  OGAN said  it  looks like  some of  the  offshore area  is                                                               
included in the exploration license  area in the northern part of                                                               
Bristol Bay. He asked if  that was done intentionally and whether                                                               
there is  a current  moratorium on  offshore drilling  in Bristol                                                               
Bay.                                                                                                                            
                                                                                                                                
MR.  MYERS said  the current  policy is  not to  include offshore                                                               
areas on  licenses in  [box 5-4]; that  policy could  change. The                                                               
current standard that DNR is  proposing for the Bristol Bay lease                                                               
sale would  be onshore siting  of facilities only.  Therefore, if                                                               
license rights or lease rights  are later offered in the offshore                                                               
to  the 3-mile  limit state  waters,  they would  have to  access                                                               
those   potential  resources   by  drilling   directionally  from                                                               
onshore. He believes  it is DNR's intention  to restrict facility                                                               
placement to onshore only.                                                                                                      
                                                                                                                                
SENATOR SEEKINS  referred to  a map  of the  area to  be reserved                                                               
provided by Mr.  Myers, and asked if the red  line represents the                                                               
3-mile limit.                                                                                                                   
                                                                                                                                
MR. MYERS said that is correct.                                                                                                 
                                                                                                                                
SENATOR SEEKINS  asked, regarding  the state's authority,  if the                                                               
bays are classified  as historic bays. He questioned  if the bays                                                               
are agreed to or claimed as, regarding state jurisdiction.                                                                      
                                                                                                                                
MR. MYERS  said one of  the things DNR has  to clarify is  the 3-                                                               
mile  limit.  It  has  never   been  surveyed.  He  advised  that                                                               
legislators will probably  see a capital funding  request so that                                                               
DNR  can accelerate  that process.  DNR believes  that historical                                                               
bays are pretty  well established by precedence but  that must be                                                               
clarified as well. Part of the  process of putting the lease sale                                                               
together is  to help determine,  in conjunction with  the federal                                                               
government,  where those  actual lines  are. Right  now they  are                                                               
only lines on a map.                                                                                                            
                                                                                                                                
CHAIR OGAN asked Mr. Myers  to provide committee members with the                                                               
background of  the plans  for the  Bristol Bay  area and  when he                                                               
expects the lease sale to occur and how he views the prospects.                                                                 
                                                                                                                                
MR. MYERS referred  to a chart showing the  proposed timelines of                                                               
the process  and noted the  targeting time  would be the  fall of                                                               
2004 for  the license  area and  the fall of  2005 for  the lease                                                               
sale. He  pointed out the  fall of  2005 is dependent  upon DNR's                                                               
ability to  notify the legislature  at any time [SB  265], rather                                                               
than  during the  legislative session.  He  said if  that is  not                                                               
possible,  the date  would  be  2007 because  DNR  would have  to                                                               
notify the legislature next year  and provide two years notice of                                                               
the upcoming sale. He said the  process is long and detailed, and                                                               
the primary document is a  best interest finding document. In the                                                               
case  of  the lease  sale,  DNR  would request  information  from                                                               
agencies  and public  comment, which  DNR has  done. DNR  has met                                                               
with all  three borough governments  in the Bristol Bay  area, as                                                               
well as the Bristol Bay  Native Association, and other interested                                                               
folks, and it has started the request for public comment.                                                                       
                                                                                                                                
That  will  eventually  lead  to   a  preliminary  best  interest                                                               
finding,  similar  to  an  EIS   document,  that  will  list  all                                                               
concerns, potential stipulation and  litigation measures, and the                                                               
balancing test  of the economics and  environmental effects. That                                                               
preliminary   findings   report   will  be   widely   distributed                                                               
throughout the  same area  for comment. MR.  MYERS said  that DNR                                                               
has  memoranda  of understandings  with  the  Bristol Bay  Native                                                               
Corporation and  the Aleut Corporation to  customize and maximize                                                               
benefits to the local communities  and Native corporations to the                                                               
extent possible.                                                                                                                
                                                                                                                                
MR.  MYERS  pointed  to  the   towns  on  the  map  where  public                                                               
informational meetings have occurred.   He indicated, at Governor                                                               
Murkowski's  direction, the  exploration license  areas are  on a                                                               
faster track with  the goal of finding a local  source of energy,                                                               
followed  by   the  competitive   sale.  He  repeated   that  the                                                               
exploration license areas are somewhat driven by the applicant.                                                                 
                                                                                                                                
CHAIR OGAN  asked if the license  area in the north  is primarily                                                               
for shallow gas.                                                                                                                
                                                                                                                                
MR. MYERS  said the basin  thickness is  less than 5,000  feet in                                                               
the  license  area.  By definition,  that  area  is  geologically                                                               
shallow, so the best potential there is for gas.                                                                                
                                                                                                                                
CHAIR OGAN asked,  "So would that be under the  shallow gas rules                                                               
then -  so it would be  a non-conventional type -  air drilled or                                                               
do you have any idea yet?"                                                                                                      
                                                                                                                                
MR.  MYERS said  DNR  doesn't know  yet but  there  would be  the                                                               
opportunity to  drill conventional  gas plays  in the  sense that                                                               
they  are  shallow.  He  said  a  lot  depends  on  the  type  of                                                               
production technique.                                                                                                           
                                                                                                                                
SENATOR  SEEKINS   asked  whether  data,   regarding  exploration                                                               
licensing, will be made public if it becomes available.                                                                         
                                                                                                                                
MR. MYERS  said drilling  well data will  be confidential  for 25                                                               
months from the  date of completion, according  to Alaska statute                                                               
and AOGCC  standards. Seismic  data will  not become  public. The                                                               
data acquired  falls under the same  rules as the well  data on a                                                               
conventional lease.  He added if  economic incentive  credits are                                                               
used, there  is a requirement to  release the data early  to DNR.                                                               
In 10 years, the seismic data becomes public.                                                                                   
                                                                                                                                
SENATOR SEEKINS asked  if an entity obtains data,  that entity is                                                               
also allowed to  get involved in the competitive  bid process for                                                               
harvest of what is there.                                                                                                       
                                                                                                                                
MR. MYERS said that is the full  intent of the program. In a non-                                                               
competitive bid, an entity negotiates with  DNR, as a term of the                                                               
license, what the terms would be to convert to a lease.                                                                         
                                                                                                                                
SENATOR SEEKINS  commented, "So it kind  of gives them a  leg up.                                                               
You say  if you guys  do this, you're first  in line to  pick the                                                               
fruit from what you find."                                                                                                      
                                                                                                                                
MR. MYERS  agreed and said  the entity is exclusively  allowed to                                                               
do that under the license program.                                                                                              
                                                                                                                                
SENATOR  BEN STEVENS  asked if  the  SB 185  credit (the  seismic                                                               
incentive credit) will apply to this region.                                                                                    
                                                                                                                                
MR. MYERS said it does; the requirements  are that it has to be 3                                                               
miles from  an existing well  drilled before 1976. It  will allow                                                               
the 40 percent credit up to 2007.                                                                                               
                                                                                                                                
SENATOR  BEN STEVENS  questioned  whether  that legislation  only                                                               
applied to the North Slope.                                                                                                     
                                                                                                                                
MR. MYERS  said it  was not  restricted to  the North  Slope. The                                                               
credits were statewide  and applied to federal  and private lands                                                               
as well.                                                                                                                        
                                                                                                                                
SENATOR  ELTON asked  how  DNR deals  with  the critical  habitat                                                               
areas in a lease sale.                                                                                                          
                                                                                                                                
MR. MYERS said a lot more  discussion takes place with the Alaska                                                               
Department  of Fish  and  Game (ADF&G)  on  the critical  habitat                                                               
areas.  A  process of elevation exists should ADF&G  not like the                                                               
standards. However,  a lot of  information gathering goes  on and                                                               
there  is  recognition  of  the importance  of  those  areas,  so                                                               
stipulation and  mitigation measures  are adapted  as appropriate                                                               
to those areas. Local community  involvement becomes critical. He                                                               
hopes  that by  working  with the  local  communities and  Native                                                               
organizations,  DNR   can  work  through  those   issues  without                                                               
difficulty.                                                                                                                     
                                                                                                                                
SENATOR  ELTON   thanked  the   department  for   providing  that                                                               
information                                                                                                                     
                                                                                                                                
4:00 p.m.                                                                                                                       
                                                                                                                                
CHAIR  OGAN   asked  if  the  Hammond   Administration  placed  a                                                               
moratorium  on  leasing   in  that  area  because   it  felt  oil                                                               
development  was  not  compatible   with  fishing,  the  economic                                                               
mainstay of  the region. He asked  if the decline of  the Bristol                                                               
Bay fishing industry  has motivated the change  in attitude about                                                               
oil and gas development.                                                                                                        
                                                                                                                                
MR.  MYERS said  many of  the  letters of  support recognize  the                                                               
economic situation and the need  for a long-term economic fix and                                                               
the value of a local tax  base from oil and gas development. Even                                                               
the fishing industry recognizes that  the value-added part of the                                                               
industry is  dependent on  a local energy  source. He  noted this                                                               
process started locally.                                                                                                        
                                                                                                                                
CHAIR OGAN  said in his  opinion, that area  is one of  the great                                                               
wonders  of  the world,  regarding  the  wildlife and  ecological                                                               
systems.  He said  the  people  who live  in  the  area are  very                                                               
culturally  and spiritually  tied  to  the land  so  he finds  it                                                               
interesting that  there has  been a shift  in attitude.  He noted                                                               
that  deep well  oil and  gas is  riskier [from  an environmental                                                               
standpoint] than shallow gas.                                                                                                   
                                                                                                                                
MR. MYERS  said he believes one  reason the potential for  an oil                                                               
and gas  sale is more  appealing to  residents now is  because of                                                               
changes in  technology. Since the  earlier wells were  drilled in                                                               
that   area,   environmental   safety   records   have   improved                                                               
dramatically.  The footprint  of  the  development facilities  is                                                               
much smaller,  perhaps 20 percent  of the  size they were  in the                                                               
1980s. The  combination of superior technology,  good stipulation                                                               
and  mitigation measures,  good spill  response, the  need for  a                                                               
locally  trained workforce,  and directional  drilling present  a                                                               
good case to  minimize environmental effects. He said  one of the                                                               
key  issues is  the location  of a  port or  tanker facility.  He                                                               
noted the best  interest finding does not assume there  will be a                                                               
sale  -  it is  a  balancing  test, and  state  will  have to  be                                                               
convinced that the benefits outweigh the environmental risks.                                                                   
                                                                                                                                
CHAIR OGAN  asked if Bristol  Bay is the largest  contiguous area                                                               
available for onshore oil and gas leasing.                                                                                      
                                                                                                                                
MR. MYERS said  the basin is 500  miles long and he  is not aware                                                               
of any  other place  in onshore North  America, other  than ANWR,                                                               
like that. He  cautioned that although the area has  good oil and                                                               
gas shoals,  reservoir rocks  and traps,  commercial hydrocarbons                                                               
have not  yet been demonstrated.  The division would love  to see                                                               
some modern data to help quantify the resource in the area.                                                                     
                                                                                                                                
CHAIR  OGAN announced  that Representative  Moses had  joined the                                                               
committee. He  then asked if  the oil  that will be  drilled from                                                               
onshore is offshore.                                                                                                            
                                                                                                                                
MR. MYERS referred  to the map of the  geologic cross-section and                                                               
described the area.                                                                                                             
                                                                                                                                
CHAIR OGAN asked about the potential for hydrates.                                                                              
                                                                                                                                
MR. MYERS said he is not aware of any onshore.                                                                                  
                                                                                                                                
CHAIR OGAN took public testimony.                                                                                               
                                                                                                                                
MR. TOM HAWKINS, Senior Vice  President of the Bristol Bay Native                                                               
Corporation   (BBNC),   noted   that   BBNC   has   about   7,000                                                               
shareholders, of  which more  than half live  in the  region. The                                                               
BBNC board  of directors  adopted a resolution  about a  year ago                                                               
that  encourages the  Governor and  DNR to  consider oil  and gas                                                               
leasing in Bristol  Bay - both were very responsive.  They held a                                                               
lot of hearings  and have been easy to work  with. The BBNC wants                                                               
the  record  to   reflect  that  the  local   support  for  these                                                               
activities is good. BBNC supports both SB 265 and SB 266.                                                                       
                                                                                                                                
CHAIR OGAN  asked Mr.  Hawkins if he  believes the  public notice                                                               
has been  adequate and whether BBNC's  position is representative                                                               
of the general public.                                                                                                          
                                                                                                                                
MR. HAWKINS said he believes the  BBNC board of directors is more                                                               
bullish than the  general population, but the  board has traveled                                                               
around  the region  and  talked to  the  boroughs and  non-profit                                                               
organizations  and village  corporations,  and  found an  amazing                                                               
level  of  support for  oil  and  gas  exploration. He  said  the                                                               
support thinned  a bit as  the Outer Continental Shelf  (OCS) was                                                               
discussed. A sale was held out  there in 1992 and later canceled.                                                               
People are  still wary of  activity in the  bay but DNR  has been                                                               
very  open  about  explaining access  to  offshore  acreage  from                                                               
onshore and the  various groups that the BBNA  has conversed with                                                               
have  routinely supported  that. BBNC  believes DNR  has done  an                                                               
excellent job. The region is huge with multiple boroughs.                                                                       
                                                                                                                                
CHAIR OGAN  cautioned that he  strongly believed that  the people                                                               
of his area  supported an activity but people  from outside, with                                                               
outside agendas, had  other opinions. He said  he can't emphasize                                                               
enough how important it is that people understand the facts.                                                                    
                                                                                                                                
MR.  HAWKINS acknowledged  that the  region is  habitat sensitive                                                               
and that residents  are shrewd about protecting  those values. He                                                               
said that  fish, wildlife, and waterfowl  play a big part  in the                                                               
economy  of the  region -  both the  traditional economy  and the                                                               
true  economy. He  believes  the  people will  hold  DNR to  high                                                               
standards  to make  sure that  development is  done in  the right                                                               
way.                                                                                                                            
                                                                                                                                
MR. TERRY HOEFFERLE,  Chief Executive Officer of  the Bristol Bay                                                               
Native Association, a tribal organization,  told members that the                                                               
BBNA has a 38-member board that  supports both SB 265 and SB 266.                                                               
He noted the  BBNA unanimously opposed Lease Sale 92  back in the                                                               
days when the price  of a barrel of oil was $13  and the price of                                                               
a sockeye  salmon was $12.  The current  price is $33  per barrel                                                               
for oil  and $2 for  a sockeye.  He said people's  attitudes have                                                               
changed with the  times. He indicated the  communities of Bristol                                                               
Bay also support both bills.                                                                                                    
                                                                                                                                
MR. BRYCE  EDGMON, Chief  Operating Officer  for the  Bristol Bay                                                               
Economic Development Corporation, stated  support for both SB 265                                                               
and SB 266.                                                                                                                     
                                                                                                                                
MR. NELS  ANDERSON JR.,  representing himself,  said that  he has                                                               
been a subsistence  hunter and fisherman who opposed  any oil and                                                               
gas activity in  the region for many years.  However, Bristol Bay                                                               
fishermen cannot sell their fish  for a decent price that enables                                                               
them to make  a living. As a  result, the economy in  the area is                                                               
going  downhill and  many  people  are moving  out  of the  area,                                                               
therefore the  residents have no  choice except to  diversify the                                                               
economy.  He said  he  is very,  very proud  of  the Bristol  Bay                                                               
Native  Corporation for  taking the  courageous step  of shifting                                                               
away from  considering commercial fishing  as the sole  source of                                                               
economic activity.  He also  commends the  BBNC for  working very                                                               
closely with the Murkowski Administration.  The Governor has made                                                               
it clear that  he would not have taken the  initiative on oil and                                                               
gas  development in  the area  without  the full  support of  the                                                               
region. He  said that  diversifying the  economy is  not possible                                                               
without low  cost energy. He said  he is more confident  that the                                                               
oil  and gas  industry is  able  to do  exploration work  without                                                               
doing any serious  harm to the environment. The  Native people in                                                               
the area have  been very successful in  protecting the resources.                                                               
He suspects that  vigilance will continue throughout  any oil and                                                               
gas development  on the Alaska  Peninsula. He stated  support for                                                               
SB  265 and  SB 266,  as  they will  help expedite  and move  the                                                               
calendar up a bit so that  licensing can occur earlier than would                                                               
be the case under current law.                                                                                                  
                                                                                                                                
MR. ANDERSON said  his only concern is that there  is no official                                                               
oversight  capability on  what  is happening  in  the region.  He                                                               
believes the  Murkowski Administration and regional  leaders need                                                               
to think about that. He believes  the only way to ensure that are                                                               
fish and game  resources are adequately is to form  a borough. He                                                               
next stated:                                                                                                                    
                                                                                                                                
     But that's  something that we'd  have to work  out here                                                                    
     on  a local  level. And  then another  thing that  we'd                                                                    
     have to  do, I believe,  to help  not only the  ... oil                                                                    
     and  gas industry,  but the  mining industry  with that                                                                    
     huge pebble find  up in the Iliamna area,  is that they                                                                    
     really can't build roads and  they really can't develop                                                                    
     the  energy without  the full  cooperation  of all  the                                                                    
     villages in the Bristol Bay  region so I have asked the                                                                    
     administration  to  take  a  very  serious  look  at  a                                                                    
     Bristol Bay regional  development authority, not unlike                                                                    
     the  [Knik   Arm]  Bridge  authority  that   will  help                                                                    
     expedite the construction  of that particular facility.                                                                    
     So the two things the region  needs is that we may have                                                                    
     to have a borough to  provide that oversight to protect                                                                    
     our fish  and game  resources, and  two, a  Bristol Bay                                                                    
     regional  development  authority  under  the  State  of                                                                    
     Alaska to  help the construction of  the infrastructure                                                                    
     that will  provide the access  and the power  needed to                                                                    
     develop  our  oil  and gas  industry  and  our  mineral                                                                    
     industry out here.                                                                                                         
                                                                                                                                
4:25 p.m.                                                                                                                       
                                                                                                                                
TAPE 04-6, SIDE B                                                                                                             
                                                                                                                                
CHAIR OGAN suggested that if  the development is successful and a                                                               
borough is formed, the area would have a tax base to pay for it.                                                                
                                                                                                                                
MR. HJALMAR  OLSON, Bristol Bay Native  Corporation, told members                                                               
he has  fished in the  region for 50 years  and has been  a board                                                               
member of the  BBNC for 30 years, and chair  and president for 25                                                               
years. He said  after seeing the economy change in  the area, the                                                               
BBNC  board  decided  to  rethink oil  and  gas  development.  He                                                               
applauded  Governor  Murkowski  for  trying  to  develop  natural                                                               
resources in  the rural areas.  He said  the BBNC board  has held                                                               
about 12  meetings around  the region. He  stated support  for SB                                                               
265 and SB 266.                                                                                                                 
                                                                                                                                
SENATOR  DYSON maintained  that there  are some  very significant                                                               
cultural   resources  in   the   area;   archeology  teams   have                                                               
investigated a number  of villages over the years.  He asked what                                                               
protections  will  be  available  to   make  sure  they  are  not                                                               
disturbed or that a sufficient analysis is done if necessary.                                                                   
                                                                                                                                
MS. MARIE  CROSLEY, Division  of Oil and  Gas, DNR,  told members                                                               
that  federal  and  state  laws   are  quite  protective  of  the                                                               
archeological resources.  In addition,  DNR has  three mitigation                                                               
measures that are  attached to the lease that  would also protect                                                               
them.  Prior  to   a  permit  being  issued,   the  lessee  would                                                               
investigate  known sites  for the  purpose of  steering clear  of                                                               
them.                                                                                                                           
                                                                                                                                
CHAIR OGAN  said from  his experience in  the private  sector, he                                                               
learned   that   the   mitigation  measures   require   that   an                                                               
archeologist survey the sites where  potential work will be done.                                                               
If any  archeological sites  are discovered,  mitigation measures                                                               
are used  to leave them  undisturbed or to preserve  the findings                                                               
appropriately.                                                                                                                  
                                                                                                                                
SENATOR ELTON asked which bill the committee was considering.                                                                   
                                                                                                                                
CHAIR OGAN  clarified that  SB 266 was  before the  committee. He                                                               
said  he would  assume that  those people  who have  testified on                                                               
both  bills  do  not  want  to  testify  again  unless  he  hears                                                               
differently. He  then announced that  he would defer to  the will                                                               
of  the  committee  regarding  whether  to  pass  the  bill  from                                                               
committee today.                                                                                                                
                                                                                                                                
SENATOR ELTON  said he views  the bills  as a pair  and suggested                                                               
passing  them  both   with  one  motion  after   they  have  been                                                               
discussed.                                                                                                                      
                                                                                                                                
SENATOR  WAGONER  informed  members   that  the  only  opposition                                                               
expressed in the Senate Community  and Regional Affairs Committee                                                               
was the  fact that  the Murkowski  Administration did  not supply                                                               
the  letters  of support  from  the  Native corporations  to  the                                                               
committee. He  said those  letters are available  now so  he does                                                               
not believe the opposition would remain.                                                                                        
                                                                                                                                
CHAIR OGAN  announced that  the committee would  hold SB  266 and                                                               
take up SB 265.                                                                                                                 
                                                                                                                                
        SB 265-OIL&GAS LEASE SALE SCHEDULE/NOTIFICATION                                                                     
                                                                                                                                
MR. MARK  MYERS, Division of  Oil and Gas, Department  of Natural                                                               
Resources   (DNR),  explained   to   members  that   SB  265   is                                                               
straightforward.  The areawide  leasing statutes  require DNR  to                                                               
notify the legislature at the first  part of a session of changes                                                               
to  the areawide  lease sale  process. SB  265 would  change that                                                               
requirement  so  that  DNR  would   be  required  to  notify  the                                                               
legislature of  those changes, but  not during the first  part of                                                               
the   legislative   session.   The   original   requirement   was                                                               
established  pre-areawide  leasing,  when  the  competitive  sale                                                               
process was the  only mechanism of leasing  and competitive sales                                                               
were proposed all  over the state so the lease  sale schedule was                                                               
constantly  changing. Under  that scenario,  the legislature  was                                                               
given a five-year schedule of the  sales and DNR would notify the                                                               
legislature during the first part  of the session of any changes.                                                               
Under areawide  leasing, DNR has  traditionally offered  the same                                                               
areas  for  lease every  year  so  there  is a  more  predictable                                                               
pattern.  Other than  North Slope  foothills, this  is the  first                                                               
time  another  sale  has  been added  to  the  areawide  process.                                                               
However,  because  the local  folks  are  driving the  sale,  the                                                               
earliest this  sale could be offered  is 2007 if DNR  is required                                                               
to  provide the  legislature with  a two-year  notice early  next                                                               
session. SB 265 will allow  DNR to notify the legislature anytime                                                               
during the  year. He noted the  legislature does not vote  on the                                                               
lease sale,  it is just  notified. Passage  of SB 265  will allow                                                               
the sale to occur in 2005 rather than 2007.                                                                                     
                                                                                                                                
CHAIR OGAN noted  that SB 265 is necessary to  change the process                                                               
for one sale only and asked  whether Mr. Myers was saying that it                                                               
would not affect  other sales around the state  because those are                                                               
identified and predictable.                                                                                                     
                                                                                                                                
MR. MYERS  said that is correct.  He added that DNR  has improved                                                               
its  best  interest finding  process,  which  typically takes  18                                                               
months, so those  sales "do not sneak up on  anyone." He repeated                                                               
that the statutory  language does not require  the legislature to                                                               
vote on  any of the  lease sales so SB  265 will only  expand the                                                               
timeframe  for notification.  He said  he  is not  sure what  the                                                               
intent  behind requiring  notification during  the early  part of                                                               
the legislative session was in  the original legislation. He said                                                               
realistically, DNR will  not be going forward  with many examples                                                               
of additional areawide sales.                                                                                                   
                                                                                                                                
4:35 p.m.                                                                                                                       
                                                                                                                                
CHAIR  OGAN  suggested  that the  original  legislation  required                                                               
                           stth                                                                                                 
notification between the  1  and  15  day of  the session because                                                               
legislators are so busy at the  end of session, the notice may go                                                               
unnoticed. He  asked Mr. Myers  if DNR  feels it is  important to                                                               
remove  that  language  because  technically  DNR  could  provide                                                               
notification on the legislation when everyone is extremely busy.                                                                
                                                                                                                                
SENATOR  ELTON  said  he  would  go  even  further.  Although  he                                                               
recognizes the  current process  can be  cumbersome, he  feels SB                                                               
265 is "pretty  loosy-goosy." He reads it to say  DNR is not even                                                               
required to  present its  annual report  on the  last day  of the                                                               
legislative session; it could present  that report in August. His                                                               
concern is  that this fix  is being done in  such a way  that the                                                               
legislature will be  losing some of its  prerogatives. He prefers                                                               
the  requirement   that  the  legislature  be   notified  at  the                                                               
beginning of  the session because  that report could  become part                                                               
of the "pipeline  of information" available to  committees to aid                                                               
in decision-making.                                                                                                             
                                                                                                                                
CHAIR OGAN said  SB 265 says DNR must notify  the legislature but                                                               
that could  entail sending one  report to a legislative  aide. He                                                               
asked what kind of modality that notification encompasses.                                                                      
                                                                                                                                
MR. MYERS  said he believes  the notification language in  SB 265                                                               
is the  same as the  language in  the original statute;  the only                                                               
change is to  the timing. He said  the intent is not  to keep the                                                               
legislature out of the loop; it  is to provide the flexibility to                                                               
hold a  sale as quickly as  DNR reasonably can. He  repeated that                                                               
DNR was encouraged  by local input to get the  [Bristol Bay] sale                                                               
going as quickly  and smoothly as possible,  especially given the                                                               
full and complete best interest  findings process. He pointed out                                                               
the original  legislation requires  notification to  occur during                                                               
the first part of each 2-year session, not each year.                                                                           
                                                                                                                                
SENATOR ELTON  maintained if  DNR is going  to provide  an annual                                                               
report,  the annual  report could  be due  to the  legislature by                                                               
January 15 of each year.                                                                                                        
                                                                                                                                
CHAIR OGAN  suggested working on  the language to specify  who in                                                               
the legislature  will receive the  report, perhaps the  chairs of                                                               
specific  committees  or the  chair  of  Legislative Council  and                                                               
majority and minority leaders during the interim.                                                                               
                                                                                                                                
SENATOR BEN STEVENS  said that language does not  cause him angst                                                               
because  he  reads it  to  say  the commissioner  shall  annually                                                               
prepare a  5-year program of  proposed lease sales to  be offered                                                               
for  leasing during  the calendar  year of  the notification.  He                                                               
said in his mind,  it would be dated January 1  for that year. It                                                               
would be in  the best interest of the commissioner  to give it to                                                               
the legislature  on January  1 because if  it was  distributed on                                                               
December 15,  it would only address  the changes for the  last 15                                                               
days  of the  year.  He  said if  the  commissioner  is going  to                                                               
propose a change  to the 5-year annual program and  he is to give                                                               
the report to  the legislature annually, it only  makes sense the                                                               
commissioner would provide it at the beginning of the year.                                                                     
                                                                                                                                
He then  referred to page 2,  line 2, and read,  "Notification to                                                               
each   legislator,  by   electronic  message   or  other   means,                                                               
constitutes   notification   to   the  legislature   under   this                                                               
subsection."  He  felt  the  words   "or  other  means"  are  too                                                               
ambiguous and moved to insert  the word "written" between "other"                                                               
and "means" [Amendment 1] and asked for unanimous consent.                                                                      
                                                                                                                                
CHAIR  OGAN announced  that without  objection,  Amendment 1  was                                                               
adopted.                                                                                                                        
                                                                                                                                
SENATOR  DYSON  said  his  guess  is  the  original  notification                                                               
requirement was included to address  scenarios similar to that of                                                               
the  Local  Boundary  Commission  or other  entities,  where  the                                                               
legislature  must intervene  to stop  the commission  from taking                                                               
action on  its decisions.  He thought  the committee  should make                                                               
sure  that  all  legislators  and  the  relevant  committees  get                                                               
notification.  If the  legislature finds  the administration  has                                                               
done  an outrageous  deed, it  can  either deal  with it  through                                                               
Legislative Council or  call a special session,  although he does                                                               
not anticipate that happening.                                                                                                  
                                                                                                                                
CHAIR   OGAN   clarified   that  the   bill   already   specifies                                                               
"notification to each legislator."                                                                                              
                                                                                                                                
SENATOR  ELTON  said he  sees  nothing  in the  legislation  that                                                               
precludes an  annual report from  being issued in January  of one                                                               
year and  August of  another year. He  expressed concern  that it                                                               
might be presented  in August intentionally so that  DNR does not                                                               
have to  answer any questions.  He said this  legislation removes                                                               
the language that  requires DNR to submit the report  in a timely                                                               
manner.                                                                                                                         
                                                                                                                                
CHAIR  OGAN  asked  how  the  Bristol Bay  lease  sale  would  be                                                               
affected if the bill only  changed the requirement for a biennial                                                               
report  to an  annual report  and retained  the existing  January                                                               
deadline.                                                                                                                       
                                                                                                                                
MR. MYERS  said the lease  sale must be  on the schedule  for two                                                               
years after notification,  so if DNR notified  the legislature by                                                               
January 15 of next year, the  earliest the sale could occur would                                                               
be in 2007.                                                                                                                     
                                                                                                                                
CHAIR OGAN  suggested modifying  the bill to  apply to  this sale                                                               
only since  a good public process  has been taking place  and the                                                               
legislature was already notified.                                                                                               
                                                                                                                                
MR. MYERS  said the driver  of the bill  is the Bristol  Bay sale                                                               
but it will also allow future flexibility.                                                                                      
                                                                                                                                
SENATOR ELTON  said he  does not  see that  as a  problem because                                                               
subsection (b) has  two elements. The first is  when DNR reports,                                                               
but it  also provides, beginning on  line 13 on page  1, that the                                                               
commissioner  may   at  any  time   notify  the   legislature  of                                                               
revisions.  He said  since the  bill has  an immediate  effective                                                               
date, he  does not see  a problem  that would affect  the Bristol                                                               
Bay sale because DNR could revise its program.                                                                                  
                                                                                                                                
MR. MYERS deferred to Ms. Crosley for clarification.                                                                            
                                                                                                                                
MS.  MARIE  CROSLEY,  Division  of Oil  and  Gas,  Department  of                                                               
Natural Resources  (DNR), agreed  with Mr.  Myers and  said there                                                               
are two elements  to this. When DNR adds a  sale to the schedule,                                                               
it would notify  the legislature immediately. The  second part is                                                               
notifying  the  legislature  of  availability  of  the  five-year                                                               
program each year instead of every other year.                                                                                  
                                                                                                                                
SENATOR  STEVENS thanked  Mr. Crosley  for the  clarification. He                                                               
said the two-year reporting requirement  will change to an annual                                                               
requirement  and that  is to  report  on the  activities of  that                                                               
calendar  year and  the  proposed activities  for  the next  four                                                               
years.  It also  gives the  commissioner latitude  to say  at any                                                               
time,  under that  plan,  it can  be  changed with  notification.                                                               
Therefore,  the commissioner  could notify  the legislature  that                                                               
DNR  wants  to change  the  lease  sale  from  2007 to  2006.  He                                                               
repeated that  provides the commissioner  with some  latitude and                                                               
it also  provides a better  reporting mechanism because  DNR will                                                               
have  to notify  the legislature  of any  changes every  year and                                                               
every time it proposes a change.                                                                                                
                                                                                                                                
SENATOR WAGONER  moved SB 266  and its attached fiscal  note with                                                               
individual recommendations.                                                                                                     
                                                                                                                                
SENATOR DYSON  noted, for  the record, that  he has  run research                                                               
vessels in the  [Bristol Bay] lease area related to  the basin in                                                               
years past for oceanographers and  marine biologists. No one owes                                                               
him any money from that work.  In addition, he fished Bristol Bay                                                               
for 25  years but no longer  has any financial interests  in that                                                               
area.                                                                                                                           
                                                                                                                                
CHAIR  OGAN asked  Senator  Dyson, given  his  experience in  the                                                               
area, whether he supports this legislation.                                                                                     
                                                                                                                                
SENATOR DYSON said he does.                                                                                                     
                                                                                                                                
CHAIR  OGAN  noted that  without  objection,  SB 266  moved  from                                                               
committee.                                                                                                                      
                                                                                                                                
SENATOR WAGONER moved  SB 265 as amended and  its attached fiscal                                                               
note from committee with individual recommendations.                                                                            
                                                                                                                                
SENATOR ELTON objected  for the purpose of  a potential amendment                                                               
[Amendment 2].  He suggested amending page  1, lines 5 and  6, by                                                               
adding "and  prior to February 1  of each calendar year"  so that                                                               
those lines would read:                                                                                                         
                                                                                                                                
     "The commissioner shall annually prepare, and prior to                                                                     
          February 1 of each calendar year, notify the                                                                          
     legislature of".                                                                                                           
                                                                                                                                
He explained that he believes  there is value for the legislature                                                               
to have the  five-year plan before it during  session. That would                                                               
enable  legislators to  know what  DNR projects  as a  reasonable                                                               
schedule. He fears if a deadline is not provided for the five-                                                                  
year  schedule,  the  legislature's  opportunity  to  discuss  it                                                               
during session would be precluded.                                                                                              
                                                                                                                                
CHAIR OGAN noted  a motion was on  the table to move  the bill so                                                               
the amendment is out of order at this time.                                                                                     
                                                                                                                                
SENATOR  WAGONER  withdrew  his  motion   to  move  SB  265  from                                                               
committee.                                                                                                                      
                                                                                                                                
SENATOR ELTON moved to adopt Amendment 2.                                                                                       
                                                                                                                                
CHAIR OGAN announced a brief  at-ease. Upon reconvening, he asked                                                               
Mr. Myers to comment on Amendment 2.                                                                                            
                                                                                                                                
MR.  MYERS  said as  long  as  Amendment  2  does not  delay  the                                                               
[Bristol Bay] lease  sale, DNR would have no  objection. He asked                                                               
Ms. Crosley  if she sees any  potential delay to the  Bristol Bay                                                               
sale resulting from Amendment 2.                                                                                                
                                                                                                                                
MS. CROSLEY  said she is  reasonably sure  it does not.  She said                                                               
one of the  problems was with Section 2, which  required the sale                                                               
to be on the schedule for two calendar years.                                                                                   
                                                                                                                                
SENATOR  ELTON  reassured  DNR  and  committee  members  that  if                                                               
Amendment 2 will  cause problems for the Bristol  Bay lease sale,                                                               
he would encourage that it be revisited on the Senate floor.                                                                    
                                                                                                                                
MR. MYERS again stated that DNR is comfortable with Amendment 2.                                                                
                                                                                                                                
SENATOR  STEVENS  repeated  that  the  bill  requires  an  annual                                                               
report, whereas the  existing law requires a  biennial report. He                                                               
questioned  the need  to specify  a time  certain for  the report                                                               
each   year.   He  indicated   he   would   go  with   individual                                                               
recommendations but will not support the amendment.                                                                             
                                                                                                                                
SENATOR ELTON  said he does not  believe Mr. Myers' intent  is to                                                               
keep information from  the legislature, but if  the annual report                                                               
is  delivered every  October, the  legislature will  be reviewing                                                               
four years of the plan when it convenes.                                                                                        
                                                                                                                                
CHAIR OGAN called for the question.                                                                                             
                                                                                                                                
The  motion to  adopt Amendment  2 carried  with Senators  Dyson,                                                               
Wagoner, Elton and Chair Ogan  in favor, and Senators Stevens and                                                               
Seekins opposed.                                                                                                                
                                                                                                                                
SENATOR  WAGONER  moved CSSB  265(RES)  and  its attached  fiscal                                                               
notes from committee with individual recommendations.                                                                           
                                                                                                                                
CHAIR OGAN announced that without  objection, the motion carried.                                                               
He then adjourned the meeting at 5:00 p.m.                                                                                      

Document Name Date/Time Subjects