Legislature(2005 - 2006)BUTROVICH 205

04/13/2005 03:30 PM RESOURCES


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 53 AK PENINSULA OIL & GAS LEASE SALE; TAXES TELECONFERENCED
Heard & Held
*+ SB 163 COOK INLET OIL & GAS TAX CREDIT TELECONFERENCED
Heard & Held
*+ SCR 6 COOK INLET OIL & GAS PLATFORM ABANDONMENT TELECONFERENCED
Moved CSSCR 6(RES) Out of Committee
*+ SCR 7 OIL AND GAS REG REVISIONS TELECONFERENCED
Moved SCR 7 Out of Committee
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                         April 13, 2005                                                                                         
                           3:40 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Thomas Wagoner, Chair                                                                                                   
Senator Ralph Seekins, Vice Chair                                                                                               
Senator Ben Stevens                                                                                                             
Senator Fred Dyson                                                                                                              
Senator Bert Stedman                                                                                                            
Senator Kim Elton                                                                                                               
Senator Gretchen Guess                                                                                                          
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 53                                                                                                              
"An Act  relating to  a credit  for certain  exploration expenses                                                               
against oil  and gas properties  production taxes on oil  and gas                                                               
produced from a  lease or property in the state;  relating to the                                                               
deadline  for certain  exploration expenditures  used as  credits                                                               
against production  tax on oil and  gas produced from a  lease or                                                               
property  in  the  Alaska  Peninsula   competitive  oil  and  gas                                                               
areawide lease  sale area after  July 1, 2004; and  providing for                                                               
an effective date."                                                                                                             
     HEARD AND HELD                                                                                                             
                                                                                                                                
SENATE BILL NO. 163                                                                                                             
"An  Act extending  and amending  the requirements  applicable to                                                               
the  credit  that  may  be   claimed  for  certain  oil  and  gas                                                               
exploration expenses incurred  in Cook Inlet against  oil and gas                                                               
properties production (severance) taxes."                                                                                       
     HEARD AND HELD                                                                                                             
                                                                                                                                
SENATE CONCURRENT RESOLUTION NO. 6                                                                                              
Urging  the governor  to  direct  the division  of  oil and  gas,                                                               
Department  of Natural  Resources, to  undertake a  comprehensive                                                               
review  of  the  subject  of  Cook Inlet  oil  and  gas  platform                                                               
abandonment  for  the  purpose  of developing  new  oil  and  gas                                                               
platform   abandonment  regulations   and   their  adoption   and                                                               
implementation.                                                                                                                 
     MOVED CSSCR 6(RES) OUT OF COMMITTEE                                                                                        
                                                                                                                                
SENATE CONCURRENT RESOLUTION NO. 7                                                                                              
Endorsing the ongoing efforts of the administration to review                                                                   
and revise program regulations with the objective of                                                                            
streamlining the exploratory oil and gas process.                                                                               
     MOVED SCR 7 OUT OF COMMITTEE                                                                                               
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB  53                                                                                                                  
SHORT TITLE: AK PENINSULA OIL & GAS LEASE SALE; TAXES                                                                           
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/12/05       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/12/05       (S)       RES, FIN                                                                                               
03/02/05       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/02/05       (S)       Heard & Held                                                                                           
03/02/05       (S)       MINUTE(RES)                                                                                            
04/13/05       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
                                                                                                                                
BILL: SB 163                                                                                                                  
SHORT TITLE: COOK INLET OIL & GAS TAX CREDIT                                                                                    
SPONSOR(s): RESOURCES                                                                                                           
                                                                                                                                
04/06/05       (S)       READ THE FIRST TIME - REFERRALS                                                                        
04/06/05       (S)       RES, FIN                                                                                               
04/13/05       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
                                                                                                                                
BILL: SCR  6                                                                                                                  
SHORT TITLE: COOK INLET OIL & GAS PLATFORM ABANDONMENT                                                                          
SPONSOR(s): RESOURCES                                                                                                           
                                                                                                                                
04/06/05       (S)       READ THE FIRST TIME - REFERRALS                                                                        
04/06/05       (S)       RES                                                                                                    
04/13/05       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
                                                                                                                                
BILL: SCR  7                                                                                                                  
SHORT TITLE: OIL AND GAS REG REVISIONS                                                                                          
SPONSOR(s): RESOURCES                                                                                                           
                                                                                                                                
04/06/05       (S)       READ THE FIRST TIME - REFERRALS                                                                        
04/06/05       (S)       RES                                                                                                    
04/13/05       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
MARY JACKSON                                                                                                                    
Staff to Senator Wagoner                                                                                                        
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on SB 53, SB 163, SCR 6 and SCR 7                                                               
for the sponsor.                                                                                                                
                                                                                                                                
MARK MYERS, Director                                                                                                            
Division of Oil and Gas                                                                                                         
Division of Geological and Geophysical Surveys                                                                                  
Department of Natural Resources                                                                                                 
400 Willoughby Ave.                                                                                                             
Juneau, AK  99801-1724                                                                                                          
POSITION STATEMENT: Supported SB 163, SCR 6 and SCR 7.                                                                        
                                                                                                                                
LISA PARKER                                                                                                                     
Agrium Inc.                                                                                                                     
Kenai AK                                                                                                                        
POSITION STATEMENT: Supported SB 163.                                                                                         
                                                                                                                                
DAN DICKINSON, Director                                                                                                         
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
PO Box 110400                                                                                                                   
Juneau, AK  99811-0400                                                                                                          
POSITION STATEMENT: Supported SB 163.                                                                                         
                                                                                                                                
DAN SEAMOUNT                                                                                                                    
Alaska Oil and Gas Conservation Commission (AOGCC)                                                                              
333 W. 7th Ave., Ste. 100                                                                                                       
Anchorage, Alaska 99501                                                                                                         
POSITION STATEMENT: Supported SCR 6.                                                                                          
                                                                                                                                
MIKE MONGER, Executive Director                                                                                                 
Cook Inlet Regional Citizens Advisory Council (CIRCAC)                                                                          
910 Highland Ave.                                                                                                               
Kenai AK 99611                                                                                                                  
POSITION STATEMENT: Commented on SCR 6.                                                                                       
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR THOMAS WAGONER called the Senate Resources Standing                                                                     
Committee meeting to order at 3:40:35 PM. Present were Senators                                                               
Guess, Ben Stevens, Stedman, Seekins and Chair Wagoner.                                                                         
                                                                                                                                
        SB  53-AK PENINSULA OIL & GAS LEASE SALE; TAXES                                                                     
                                                                                                                                
CHAIR WAGONER announced SB 53 to be up for consideration.                                                                       
                                                                                                                                
MARY  JACKSON,  staff  to Senator  Wagoner,  explained  that  the                                                               
companion measure, HB  71, is heading in this  direction and they                                                               
are amendments.                                                                                                                 
                                                                                                                                
     The point of bringing this  to your attention is to let                                                                    
     you  know  that  all  of   these  are  coming.  Senator                                                                    
     Wagoner's intention is to hold  SB 53 in this committee                                                                    
     so  that when  HB 71  comes across,  that would  be the                                                                    
     bill that would be in front of you.                                                                                        
                                                                                                                                
CHAIR WAGONER  said there was no  public testimony and set  SB 53                                                               
aside to wait for legislation to arrive from the other body.                                                                    
                                                                                                                                
             SB 163-COOK INLET OIL & GAS TAX CREDIT                                                                         
                                                                                                                                
CHAIR   THOMAS  WAGONER   announced   SB  163   to   be  up   for                                                               
consideration.                                                                                                                  
                                                                                                                                
3:44:15 PM                                                                                                                    
SENATOR KIM ELTON joined the committee.                                                                                         
                                                                                                                                
MARY   JACKSON,  staff   to  Senator   Wagoner,  explained   that                                                               
exploration incentive credits were  extended to regions in Alaska                                                               
in previous  legislation, but not  in the Cook Inlet  region. She                                                               
was instructed  to work on credits  that would apply to  the Cook                                                               
Inlet and that's what SB 163  does. She provided a map to explain                                                               
positioning for credits and said  that the old bill provided that                                                               
exploration wells must  be outside of three miles  from the first                                                               
drill  to receive  the  first 20  percent  incentive credit.  Any                                                               
wells  outside of  25 miles  would  receive a  second 20  percent                                                               
credit. "None of it fits the Cook Inlet."                                                                                       
                                                                                                                                
3:46:32 PM                                                                                                                    
MS. JACKSON explained  that SB 163 says the drill  must be within                                                               
the three  miles for the first  20 percent credit and  outside of                                                               
ten miles  for the  second 20 percent.  However, she  pointed out                                                               
that  even the  10  mile is  too  big and  very  little would  be                                                               
applicable  there. It  also  provides that  the  producer has  to                                                               
apply for the  credits and the department must  respond within 60                                                               
days, although the  department would like 90 days.  The credit is                                                               
capped at $20 million.                                                                                                          
                                                                                                                                
3:47:40 PM                                                                                                                    
SENATOR KIM  ELTON asked  how much incentive  would be  needed in                                                               
terms  of  making  production  efficient in  Cook  Inlet  at  the                                                               
current price levels.                                                                                                           
                                                                                                                                
3:47:56 PM                                                                                                                    
MARK MYERS,  Director, Division  of Oil and  Gas and  Division of                                                               
Geological  and Geophysical  Surveys, replied  that the  chairman                                                               
asked him  what could  be done  in terms  of incentives  for Cook                                                               
Inlet that already  has a large number of wells.  There are still                                                               
some legitimate exploration targets that have not been explored.                                                                
                                                                                                                                
He  explained  why  saying  that  the  earlier  tax  EIC  used  a                                                               
mechanical  mechanism that  defined an  exploration well  via its                                                               
distance  from other  wells. That's  only  one test  that may  be                                                               
relevant and  while it is  simple, it's really artificial.  It is                                                               
irrelevant  to the  geological and  economic risk  taken on  by a                                                               
producer  or an  explorer.  A  lot of  the  plays  are in  deeper                                                               
horizons  near  existing infrastructure,  but  they  are no  less                                                               
risky geologically than  a frontier area or wildcat  in the sense                                                               
of  the  geologic risk.  The  question  is  in  a basin  that  is                                                               
relatively  mature, how  to define  viable exploration  plays and                                                               
how to  provide incentives for  them. Recognizing  the three-mile                                                               
distance  criteria doesn't  really  define  an exploration  play.                                                               
This presupposes  a geological test  - that a company  would make                                                               
its case  to the department with  seismic and well data  or other                                                               
geological  and  geophysical  data  and  the  commissioner  would                                                               
predetermine  if  it  is  a  separate   target  or  if  it  is  a                                                               
development well of an existing discovery.                                                                                      
                                                                                                                                
     If  they  can  demonstrate   that  it  is  geologically                                                                    
     distinct or  reasonably estimated  with the data  to be                                                                    
     distinct, the commissioner  would pre-certify that they                                                                    
     would be eligible for the credit for the well.                                                                             
                                                                                                                                
The  Cook Inlet  is seen  by the  majors as  a relatively  mature                                                               
asset  and  the  credit   should  encourage  smaller  independent                                                               
companies  to   explore.  It  would  assist   in  their  drilling                                                               
relatively expensive wells  or bringing in the  expensive jack up                                                               
rigs  or other  infrastructure needed  to drill  in the  offshore                                                               
areas.  Capping the  amount at  $20 million  limits the  downside                                                               
potential to the state.                                                                                                         
                                                                                                                                
SENATOR ELTON  said he  didn't think there  was a  perfect answer                                                               
because it's highly speculative.                                                                                                
                                                                                                                                
3:52:00 PM                                                                                                                    
SENATOR DYSON joined the committee.                                                                                             
                                                                                                                                
SENATOR ELTON asked what the status  of the shallow gas leases in                                                               
the  southern Kenai  Peninsula are  and if  this credit  would be                                                               
applicable there.                                                                                                               
                                                                                                                                
MR. MYERS  replied there is no  restriction on the credits  as to                                                               
where they  would apply in  Cook Inlet - any  well as long  as it                                                               
meets the standards would qualify.                                                                                              
                                                                                                                                
3:53:49 PM                                                                                                                    
SENATOR SEEKINS  commented that a  dry hole  is still a  dry hole                                                               
regardless of the price of oil.                                                                                                 
                                                                                                                                
3:54:28 PM                                                                                                                    
LISA  PARKER,  Agrium  Inc.,  Kenai,  said  she  appreciated  the                                                               
legislature's  efforts to  encourage development  in Cook  Inlet.                                                               
With  respect to  SB  163,  she said  section  1  would apply  to                                                               
activity after  July 1, 2005  only and she  asked if that  is the                                                               
intent or a typing error.                                                                                                       
                                                                                                                                
She said section  4 and the five-year program in  Cook Inlet with                                                               
the $20 million limit would mean  that five or six wells could be                                                               
drilled or  one, if it is  offshore. She asked them  to reexamine                                                               
the limit.                                                                                                                      
                                                                                                                                
The programs  still contain the usual  exclusions, which diminish                                                               
the  attractiveness of  the incentive  program. These  exclusions                                                               
include  administration,  supervision,  engineering,  geological,                                                               
management  and  the  environmental  costs -  all  of  which  are                                                               
significant components  and reduce  the actual incentive  from 20                                                               
percent to  around 10  percent. With the  incentive being  at the                                                               
discretion  of the  commissioner  who usually  decides after  the                                                               
work is incurred, potentially these  would have little impacts on                                                               
an oil company's economics.                                                                                                     
                                                                                                                                
3:56:33 PM                                                                                                                    
CHAIR WAGONER said  the July 1, 2005 date was  wanted in the bill                                                               
and  that the  $20  million  limit could  at  least get  activity                                                               
started and could be revisited.                                                                                                 
                                                                                                                                
     At this time I think the $20 million laying out there                                                                      
     gives some certainty to a lot of people that sometimes                                                                     
     question an open-ended incentive....                                                                                       
                                                                                                                              
DAN  DICKINSON, Director,  Tax  Division,  Department of  Revenue                                                             
(DOR),  echoed Mr.  Myers' and  Ms. Jackson's  comments. He  said                                                             
this is a  production tax credit that is more  attuned to what is                                                               
going on  in Cook Inlet.  He corrected  Ms. Parker who  said that                                                             
the credit is  capped at $20 million per well,  saying that it is                                                             
not per  well, but  each well  getting 20  percent credit  not to                                                             
exceed $20 million  total. But, he thought who  actually gets the                                                             
credit could be clarified.                                                                                                      
                                                                                                                                
CHAIR WAGONER  noted that there  was no further  public testimony                                                               
and set SB 163 aside.                                                                                                           
                                                                                                                                
        SCR  6-COOK INLET OIL & GAS PLATFORM ABANDONMENT                                                                    
                                                                                                                              
CHAIR WAGONER announced SCR 6 to be up for consideration.                                                                       
                                                                                                                                
MARY JACKSON,  staff to  Senator Wagoner,  sponsor, said  the two                                                               
resolutions coming before  the committee are part  of the results                                                               
of the February Kenai meeting  about abandonment of the platforms                                                               
in Cook Inlet, a serious  issue since 1996. This resolution urges                                                               
the  governor to  ask the  department to  promulgate regulations.                                                               
There was some  question about whether the  Department of Natural                                                               
Resources  or  the Alaska  Oil  and  Gas Conservation  Commission                                                               
(AOGCC)  had precedence  over  that  and it  was  found that  the                                                               
department does.                                                                                                                
                                                                                                                                
4:02:03 PM                                                                                                                    
MARK  MYERS, Director,  Division of  Oil and  Gas, Department  of                                                               
Natural Resources  (DNR) said abandonment  is really a  big deal.                                                               
Many wells are  ending their lives; some  have been "lighthoused"                                                               
and  some have  been partially  abandoned. It  involves a  lot of                                                               
stakeholders  and  has  issues   like  navigability.  The  leases                                                               
require  full-abandonment -  full  removal and  back to  original                                                               
condition.                                                                                                                      
                                                                                                                                
However, there  are questions  of whether  there might  be better                                                               
and higher uses  for the platforms and who  retains the liability                                                               
at the  point of abandonment.  The state has  historically relied                                                               
on  parent  company  guarantees  and  the  deep  pockets  of  the                                                               
original lessee. "It's not a  liability you can sign away. That's                                                               
a very strong  incentive, again, a very strong  protection in the                                                               
process."                                                                                                                       
                                                                                                                                
Smaller companies  can take over  some of the platforms  and that                                                               
has happened,  but the  state wants to  make sure  it's protected                                                               
from  liability. With  all that  said, the  liability becomes  an                                                               
issue when  folks want to sell  the platforms and they  should be                                                               
entitled to some certainty about  how, in fact, and what standard                                                               
the state is going to hold the lessee to.                                                                                       
                                                                                                                                
     In the end,  we fully need a process. We  need a series                                                                    
     of regulations about how we  deal with these things and                                                                    
     quite  honestly,  since  statehood, really  we  haven't                                                                    
     gone through  full abandonment of these  platforms. So,                                                                    
     we're into new territory. We  expect to hold a full set                                                                    
     of procedures  this year  on this  issue, but  until we                                                                    
     have  our  act together,  but  until  we have  all  the                                                                    
     participants  at   the  table,  all   the  stakeholders                                                                    
     involved,  we  haven't been  prepared  to  do it.  This                                                                    
     urges  us to  do it.  We recognize  in fairness  to all                                                                    
     parties we need to do it;  we recognize there are a lot                                                                    
     of stakeholders involved and we are the lead agency.                                                                       
                                                                                                                                
He supported the resolution, but admitted it is a daunting task.                                                                
                                                                                                                                
4:04:39 PM                                                                                                                    
DAN  SEAMOUNT,   Alaska  Oil  and  Gas   Conservation  Commission                                                               
(AOGCC), said he  really supports the goal of future  oil and gas                                                               
exploration  and  development. He  said  there  is potential  for                                                               
undiscovered  oil  within  reach  of  the  Cook  Inlet  platforms                                                               
because the  known reservoirs still  have a lot of  oil. Recovery                                                               
of  the original  oil in  place has  been relatively  slow off  a                                                               
number of the platforms - less  than 30 percent compared to other                                                               
field  such as  Prudhoe Bay  with recoveries  of greater  than 50                                                               
percent of the original oil in place.                                                                                           
                                                                                                                                
     We believe  there are hundreds  of millions  of barrels                                                                    
     of oil  left in  the produced fields  of Cook  Inlet in                                                                    
     known  reservoirs. With  this, motivated  and energized                                                                    
     production  companies  such  as Crosstimber  should  be                                                                    
     encouraged  to use  technology to  recover more  of the                                                                    
     known oil  - that's the  oil that's reachable  from the                                                                    
     platforms.  Also,  there's exploration  potential  left                                                                    
     within  reach. There  are  fewer  than 300  exploration                                                                    
     wells and 1,000  total wells that have  been drilled in                                                                    
     the entire history of the 10,000 square mile basin.                                                                        
                                                                                                                                
MR. SEAMOUNT  said that he knows  of similar size basins  such as                                                               
the San  Juan Basin  in New  Mexico, which  has 29,000  wells and                                                               
discoveries are still being made there.                                                                                         
                                                                                                                                
     Leslie  Lagoon with  the USGS  -  expert geologist  and                                                                    
     geochemist -  has concluded that  only four  percent of                                                                    
     the total  oil generated in  Cook Inlet Basin  has ever                                                                    
     been found.  We don't  know yet  if condensing  oil has                                                                    
     escaped  to  the  surface  or  it's  still  trapped  in                                                                    
     undiscovered oil fields or both,  but there is a lot of                                                                    
     oil that has not been  accounted for yet. As Mark Myers                                                                    
     was  saying, there  are  untested  fault blocks  within                                                                    
     reach  and  under  exploratory prospects  that  there's                                                                    
     been identified by  many petroleum explorationists over                                                                    
     the last 50 years.                                                                                                         
                                                                                                                                
     Possibly  the  highest  potential   play  is  the  Pre-                                                                    
     tertiary,  Cretaceous  and  Jurassic rocks  that  we've                                                                    
     been hearing  about lately  in the  news and  Mr. Myers                                                                    
     mentioned. The  Jurassic rocks is where  almost all the                                                                    
     oil  is generated.  To date,  only 55  wells have  been                                                                    
     drilled  in this  section and  most  have been  drilled                                                                    
     only  into  the  very  top.  Little  is  known  of  its                                                                    
     productive  potential. We  feel  the existing  offshore                                                                    
     platforms represent viable  infrastructure and it makes                                                                    
     sense to  reenter their idle  well bores and  deepen or                                                                    
     sidetrack  to test  the Pre-tertiary  section of  5,000                                                                    
     ft. extra  depth below the Tertiary.  It's an arbitrary                                                                    
     number, but  it really comes close  to fully evaluating                                                                    
     the  Pre-tertiary sections  potential.  You could  also                                                                    
     drill  to  see  the  new fault  blocks  and  the  other                                                                    
     prospects before abandoning the platforms.                                                                                 
                                                                                                                                
     As I've alluded  to, there are four  tiers of potential                                                                    
     that  are within  reach of  the platforms.  There's the                                                                    
     unproduced  oil  in  known reservoirs;  there  are  new                                                                    
     fault  blocks. There  are  many identified  exploration                                                                    
     prospects  and  there's  the Pre-tertiary  play.  These                                                                    
     plays would  most likely be uneconomic  and unreachable                                                                    
     if it were not [indisc.] to existing platforms.                                                                            
                                                                                                                                
     Our new  commissioner, Kathy  Forester, pointed  out to                                                                    
     me  -  she's got  a  lot  of  experience on  the  North                                                                    
     Slope.... She pointed  out to us that  the situation at                                                                    
     Cook  Inlet is  analogous to  that of  the North  Slope                                                                    
     where  ConocoPhillips and  BP  are  already using  idle                                                                    
     well bores on existing pads  to deepen or sidetrack for                                                                    
     small  accumulations   of  reservoirs  that   would  be                                                                    
     uneconomic if  not for the existing  infrastructure. In                                                                    
     other words, it's possible that  Cook Inlet has already                                                                    
     been  shown to  be  successful by  the  success on  the                                                                    
     North Slope.                                                                                                               
                                                                                                                                
     We feel  the platforms should  be viewed as  assets and                                                                    
     we  recommend that  all  stakeholders  be very  careful                                                                    
     when  considering abandonment  and  do everything  they                                                                    
     can to have  all of the potential oil  and gas reserves                                                                    
     tested   before  abandonment.   There's  a   window  of                                                                    
     opportunity right  now to capture  additional reserves.                                                                    
     Platform abandonment would close  that window. Once the                                                                    
     window closes, much of the  state's resources and Kenai                                                                    
     Peninsula's economic potential could be lost.                                                                              
                                                                                                                                
4:10:34 PM                                                                                                                    
CHAIR  WAGONER  added that  currently  there  are over  300  jobs                                                               
directly related to Cook Inlet  platforms. "It's a very important                                                               
part of  the overall oil  and gas economy  that we have  based in                                                               
Cook Inlet right now."                                                                                                          
                                                                                                                                
4:11:05 PM                                                                                                                    
MIKE  MONGER, Executive  Director, Cook  Inlet Regional  Citizens                                                               
Advisory  Council   (CIRCAC),  said   the  council   has  similar                                                               
interests in the Cook Inlet  platform removal. Their research has                                                               
revealed  that  DNR  has  no  specific  regulations  or  statutes                                                               
governing lessee's  obligations and determines  their obligations                                                               
on a  case-by-case basis.  He said  the council's  research paper                                                               
will be released  in May and he  would be happy to  share it with                                                               
them.                                                                                                                           
                                                                                                                                
4:13:28 PM                                                                                                                    
CHAIR WAGONER closed the public hearing.                                                                                        
                                                                                                                                
4:13:33 PM                                                                                                                    
SENATOR GRETCHEN GUESS moved Amendment 1.                                                                                       
                                                                                                                                
                                                    24-Ls0775\A.1                                                               
                                                        Chenoweth                                                               
                                                          4/12/05                                                               
                          AMENDMENT 1                                                                                           
                                                                                                                                
OFFERED IN THE SENATE                         BY SENATOR WAGONER                                                                
   TO: SCR 6                                                                                                                    
   1 Page 2, line 6:                                                                                                            
   2     Delete "smaller"                                                                                                       
   3     Insert "growing, independent"                                                                                          
                                                                                                                                
SENATOR ELTON objected to ask  if using the word "growing" limits                                                               
the intent.                                                                                                                     
                                                                                                                                
MS. JACKSON  explained that this paragraph  references XTO Energy                                                               
that  is no  longer in  a smaller  bracket. "They  are a  growing                                                               
independent company."                                                                                                           
                                                                                                                                
CHAIR WAGONER said it is  growing worldwide since taking over the                                                               
Shell platforms.                                                                                                                
                                                                                                                                
SENATOR ELTON removed his objection.                                                                                            
                                                                                                                                
4:15:32 PM                                                                                                                    
SENATOR   SEEKINS  moved   CSSCR  6(RES)   from  committee   with                                                               
individual recommendations.  There were no objections  and it was                                                               
so ordered.                                                                                                                     
                                                                                                                                
                SCR  7-OIL AND GAS REG REVISIONS                                                                            
                                                                                                                                
CHAIR THOMAS WAGONER announced SCR 7 to be up for consideration.                                                                
                                                                                                                                
MARY  JACKSON, staff  to Senator  Wagoner,  said this  resolution                                                               
came  from  the  Kenai  meeting  also.  Practically  speaking,  a                                                               
gentleman named James  Udelhoven who began work in  Cook Inlet in                                                               
the late  1960's cautioned, "Don't  make the first hurdle  so big                                                               
that the new kid won't try to take the hurdle."                                                                                 
                                                                                                                                
She said this resolution was  created to applaud the efforts that                                                               
have been made to streamline  permitting and to insure that those                                                               
efforts are continued.                                                                                                          
                                                                                                                                
MARK  MYERS,  Director,  Division  of   Oil  and  Gas  and  State                                                               
Geological  Survey, supported  SCR  7 saying  it would  eliminate                                                               
overhead and duplication.                                                                                                       
                                                                                                                                
4:19:01 PM                                                                                                                    
CHAIR  WAGONER said  the Regulatory  Commission  of Alaska  (RCA)                                                               
could work  at a  faster rate and  has already  demonstrated that                                                               
recently.                                                                                                                       
                                                                                                                                
SENATOR   RALPH   SEEKINS   asked  for   examples   of   enhanced                                                               
attractiveness of exploration and development.                                                                                  
                                                                                                                                
MR.  MYERS replied  that  some outstanding  examples  are in  the                                                               
Beaufort Sea  where Teck Cominco  and Armstrong  Resources bought                                                               
leases and within  four months had their permits to  drill in the                                                               
Beaufort  Sea, which  is usually  one  of the  hardest places  to                                                               
permit  because  of  the   environmental  issues,  remoteness  of                                                               
location  and  concerns  over subsistence  resources.  They  have                                                               
developed  good  working  relationships   with  the  North  Slope                                                               
Borough, which  is necessary.  Kerr McGee did  the same  with two                                                               
separate rigs  this winter  and last.  These companies  are brand                                                               
new to Alaska.  He explained that the hearing  process within the                                                               
communities has  to happen up front  and that while it  is labor-                                                               
intensive, it streamlines the process later on.                                                                                 
                                                                                                                                
4:22:51 PM                                                                                                                    
SENATOR SEEKINS  asked if the streamlining  had been accomplished                                                               
through  efforts of  the legislature  or just  through incentives                                                               
initiated by the administration.                                                                                                
                                                                                                                                
MR. MYERS replied  that the legislature has  enhanced the process                                                               
by  funding  some  positions  and  moving  program  offices  like                                                               
Coastal   Zone  Management   into  the   Department  of   Natural                                                               
Resources. It  has provided funding  on a case-by-case  basis for                                                               
project coordinators and supported  budget increases at times for                                                               
agencies like DEC in critical  areas. Having extra folks on staff                                                               
has been critically important.                                                                                                  
                                                                                                                                
4:24:45 PM                                                                                                                    
CHAIR WAGONER related that other  companies are going to drill in                                                               
the Beaufort Sea.                                                                                                               
                                                                                                                                
MR. MYERS replied that ConocoPhillips  has a well, Kerr McGee has                                                               
multiple  wells and  Pioneer is  looking at  development. Another                                                               
well will  potentially be shallow-drilled off  the Point McIntyre                                                               
area.                                                                                                                           
                                                                                                                                
CHAIR WAGONER  asked if Pioneer  was in  the process of  having a                                                               
platform built for them.                                                                                                        
                                                                                                                                
MR. MYERS replied  yes, it is lighter weight and  more mobile. He                                                               
said Pioneer  is not  actively drilling this  year, but  they are                                                               
assessing  sanctioning a  development  project  from the  earlier                                                               
successful drilling out there about two years ago.                                                                              
                                                                                                                                
4:26:19 PM                                                                                                                    
SENATOR  SEEKINS  moved  to  pass   SCR  7  from  committee  with                                                               
individual recommendations  and zero  fiscal note. There  were no                                                               
objections and it was so ordered.                                                                                               
                                                                                                                                
CHAIR WAGONER adjourned the meeting at 4:26:58 PM.                                                                            
                                                                                                                                
                                                                                                                                

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