Legislature(2005 - 2006)BUTROVICH 205

04/28/2006 03:30 PM RESOURCES

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Audio Topic
03:35:11 PM Start
03:35:58 PM HB395
03:47:10 PM HB420
03:54:54 PM Pt. Thomson Unit Update
04:36:31 PM Michael Menge, Commissioner, Department of Natural Resources
04:39:57 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSHB 395(FIN) Out of Committee
Moved CSHB 420(FSH) Out of Committee
+ Pt. Thomson Unit Agreement Update TELECONFERENCED
+ Confirmation Hearing - TELECONFERENCED
DNR Commissioner Menge
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                         April 28, 2006                                                                                         
                           3:35 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                                                                                                               
MEMBERS ABSENT                                                                                                                
Senator Albert Kookesh                                                                                                          
COMMITTEE CALENDAR                                                                                                            
CS FOR HOUSE BILL NO. 395(FIN)                                                                                                  
"An Act relating to the period of the fire season; and providing                                                                
for an effective date."                                                                                                         
     MOVED CSHB 395(FIN) OUT OF COMMITTEE                                                                                       
CS FOR HOUSE BILL NO. 420(FSH)                                                                                                  
"An Act relating to riparian protection standards for forest                                                                    
resources and practices; and providing for an effective date."                                                                  
     MOVED CSHB 420(FSH) OUT OF COMMITTEE                                                                                       
Point Thomson Update                                                                                                            
Confirmation Hearing - Department of Natural Resources                                                                          
Commissioner: Michael Menge                                                                                                     
     CONFIRMATION ADVANCED                                                                                                      
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 395                                                                                                                  
SHORT TITLE: FIRE SEASON DATES                                                                                                  
SPONSOR(s): REPRESENTATIVE(s) OLSON                                                                                             
01/25/06       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/25/06       (H)       RES, FIN                                                                                               
02/06/06       (H)       RES AT 1:00 PM CAPITOL 124                                                                             
02/06/06       (H)       Moved Out of Committee                                                                                 
02/06/06       (H)       MINUTE(RES)                                                                                            
02/08/06       (H)       RES RPT 6DP 1NR                                                                                        
02/08/06       (H)       DP: GATTO, ELKINS, LEDOUX, CRAWFORD,                                                                   
                         OLSON, RAMRAS;                                                                                         
02/08/06       (H)       NR: SAMUELS                                                                                            
02/14/06       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
02/14/06       (H)       Heard & Held                                                                                           
02/14/06       (H)       MINUTE(FIN)                                                                                            
03/02/06       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
03/02/06       (H)       Moved CSHB 395(FIN) Out of Committee                                                                   
03/02/06       (H)       MINUTE(FIN)                                                                                            
03/06/06       (H)       FIN RPT CS(FIN) NT 5DP 2NR 1AM                                                                         
03/06/06       (H)       DP: HAWKER, FOSTER, KELLY, MEYER,                                                                      
03/06/06       (H)       NR: JOULE, HOLM;                                                                                       
03/06/06       (H)       AM: WEYHRAUCH                                                                                          
03/22/06       (H)       TRANSMITTED TO (S)                                                                                     
03/22/06       (H)       VERSION: CSHB 395(FIN)                                                                                 
03/24/06       (S)       READ THE FIRST TIME - REFERRALS                                                                        
03/24/06       (S)       CRA, RES                                                                                               
04/10/06       (S)       CRA AT 1:30 PM BELTZ 211                                                                               
04/10/06       (S)       Moved CSHB 395(FIN) Out of Committee                                                                   
04/10/06       (S)       MINUTE(CRA)                                                                                            
04/12/06       (S)       CRA RPT  4DP                                                                                           
04/12/06       (S)       DP:   STEDMAN,   WAGONER,   STEVENS   G,                                                               
04/28/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
BILL: HB 420                                                                                                                  
SHORT TITLE: FOREST RESOURCES & PRACTICES STANDARDS                                                                             
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
02/01/06       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/01/06       (H)       FSH, RES                                                                                               
02/15/06       (H)       FSH AT 8:30 AM CAPITOL 124                                                                             
02/15/06       (H)       Moved CSHB 420(FSH) Out of Committee                                                                   
02/15/06       (H)       MINUTE(FSH)                                                                                            
02/17/06       (H)       FSH RPT CS(FSH) 5DP                                                                                    
02/17/06       (H)       DP: HARRIS, WILSON, ELKINS, THOMAS,                                                                    
03/22/06       (H)       RES AT 1:00 PM CAPITOL 124                                                                             
03/22/06       (H)       Moved CSHB 420(FSH) Out of Committee                                                                   
03/22/06       (H)       MINUTE(RES)                                                                                            
03/24/06       (H)       RES RPT CS(FSH) 5DP 2NR                                                                                
03/24/06       (H)       DP: SEATON, ELKINS, LEDOUX, CRAWFORD,                                                                  
03/24/06       (H)       NR: GATTO, OLSON                                                                                       
04/11/06       (H)       TRANSMITTED TO (S)                                                                                     
04/11/06       (H)       VERSION: CSHB 420(FSH)                                                                                 
04/12/06       (S)       READ THE FIRST TIME - REFERRALS                                                                        
04/12/06       (S)       RES, FIN                                                                                               
04/28/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
WITNESS REGISTER                                                                                                              
REPRESENTATIVE CURT OLSON                                                                                                       
Alaska State Capitol                                                                                                            
Juneau, AK 99801-1182                                                                                                           
POSITION STATEMENT:  Sponsor of HB 395.                                                                                       
CONRAD JACKSON, Staff                                                                                                           
Representative Curt Olson                                                                                                       
Alaska State Capitol                                                                                                            
Juneau, AK 99801-1182                                                                                                           
POSITION STATEMENT:  Introduced HB 395 on behalf of the sponsor.                                                              
SCOTT WALDEN, Coordinator                                                                                                       
Office of Emergency Management                                                                                                  
Kenai, AK                                                                                                                       
POSITION STATEMENT:  Supported HB 395.                                                                                        
MARTY WELBOURN FREEMAN, Program Manager                                                                                         
Forest Resources                                                                                                                
Division of Forestry,                                                                                                           
Department of Natural Resources (DNR),                                                                                          
POSITION STATEMENT:  Presented HB 420.                                                                                        
JAMES DURST                                                                                                                     
Office of Habitat Management & Permitting                                                                                       
Department of Natural Resources                                                                                                 
400 Willoughby Ave.                                                                                                             
Juneau, AK  99801-1724                                                                                                          
POSITION STATEMENT:  Supported the process and the outcome of HB                                                              
BILL VANDYKE, Director                                                                                                          
Division of Oil & Gas                                                                                                           
Department of Natural Resources                                                                                                 
400 Willoughby Ave.                                                                                                             
Juneau, AK  99801-1724                                                                                                          
POSITION STATEMENT:  Participated in the Point Thompson update.                                                               
MIKE MENGE, Commissioner                                                                                                        
Department of Natural Resources                                                                                                 
400 Willoughby Ave.                                                                                                             
Juneau, AK  99801-1724                                                                                                          
POSITION   STATEMENT:      Presented   Point   Thompson   update;                                                             
Commissioner designee - Department of Natural Resources.                                                                        
ACTION NARRATIVE                                                                                                              
CHAIR  THOMAS  WAGONER  called   the  Senate  Resources  Standing                                                             
Committee meeting to order at 3:35:11  PM. Present at the call to                                                             
order were Senators Ben Stevens,  Fred Dyson, Kim Elton and Chair                                                               
Thomas Wagoner.  Senators Bert Stedman and  Ralph Seekins arrived                                                               
shortly thereafter.                                                                                                             
                CSHB 395(FIN)-FIRE SEASON DATES                                                                             
CHAIR   THOMAS  WAGONER   announced   HB  395   to   be  up   for                                                               
REPRESENTATIVE CURT  OLSON, sponsor of HB  395, introduced Conrad                                                               
3:35:58 PM                                                                                                                    
CONRAD JACKSON, staff to Representative  Curt Olson, said that HB                                                               
395 would  move the start and  end dates of the  fire season back                                                               
one  month. He  explained  that  moving the  start  date back  is                                                               
particularly  important  so  that  fire  fighting  personnel  and                                                               
equipment will be in place to fight early-season fires.                                                                         
More early  fires are seen  around the state because  spruce bark                                                               
beetle  infestations have  resulted  in  increased fuel  sources.                                                               
Without the proper equipment and  personnel in place, these early                                                               
fires  have  the potential  of  growing  and becoming  much  more                                                               
difficult to contain and extinguish.                                                                                            
3:37:09 PM                                                                                                                    
SENATOR BERT STEDMAN joined the committee.                                                                                      
SENATOR KIM  ELTON asks  if the season  starts one  month earlier                                                               
and ends one month earlier.                                                                                                     
Mr.  Jackson replied  yes. Initially  the idea  was to  start the                                                               
season one month earlier to deal  to pre-green up fires, but that                                                               
resulted in a fiscal note  that approached $1 million. Moving the                                                               
end date back one month made  it possible to zero the fiscal note                                                               
so that's what was done.                                                                                                        
CHAIR WAGONER  commented that  on the  Kenai Peninsula  the rainy                                                               
season  begins in  early August.  By the  end of  August the  dew                                                               
point is  usually down  so this  wouldn't be  a problem  for that                                                               
3:39:54 PM                                                                                                                    
SCOTT  WALDEN, Coordinator,  Kenai  Peninsula  Borough Office  of                                                               
Emergency Management,  stated support for the  amended version of                                                               
HB  395. In  the  Kenai  area the  spring  fires  are of  greater                                                               
concern  than in  the late  season and  it's prudent  to mobilize                                                               
resources early.  He noted that  if a  fire were to  overlap past                                                               
August, there is the opportunity for supplemental help.                                                                         
CHAIR WAGONER closed public testimony.                                                                                          
3:42:01 PM                                                                                                                    
Senator Dyson moved  to report CSHB 396(FIN)  from committee with                                                               
individual  recommendations and  zero fiscal  note. No  objection                                                               
was stated, and it was so ordered.                                                                                              
3:42:35 PM at ease 3:43:51 PM                                                                                               
         HB 420-FOREST RESOURCES & PRACTICES STANDARDS                                                                      
CHAIR WAGONER announced HB 420 to be up for consideration.                                                                      
MARTY  WELBOURN   FREEMAN,  Forest  Resources   Program  Manager,                                                               
Division  of Forestry,  Department  of  Natural Resources  (DNR),                                                               
explained that  HB 420 updates the  riparian management standards                                                               
in Region  II in  Southcentral Alaska.  Specifically that  is the                                                               
area  along streams,  particularly  salmon  and other  high-value                                                               
fish streams.  Riparian standards  have already been  updated for                                                               
Regions I and III so this is the last in a long process.                                                                        
MS. FREEMAN said  the process began with a  science and technical                                                               
committee  composed of  fisheries biologists,  forest ecologists,                                                               
soil  scientists,  and  hydrologists   that  looked  at  relevant                                                               
information  and made  recommendations. The  recommendations were                                                               
given  to   an  implementation  group,  which   was  composed  of                                                               
representatives  of  the  people potentially  affected  including                                                               
forest land  owners, the timber  industry, the  fishing industry,                                                               
environmental groups,  and the agencies that  would implement the                                                               
bill.  The  idea  was  to  develop practical  ways  to  make  the                                                               
scientists'   recommendations   work   on   the   ground.   Those                                                               
recommendations are reflected in HB 420.                                                                                        
MS.  FREEMAN noted  that  the  Board of  Forestry  worked on  and                                                               
endorses the  broadly supported bill. Significant  landholders in                                                               
Region  II  have been  contacted  and  have expressed  a  comfort                                                               
level, she said.                                                                                                                
HB 420  is specifically tailored  to Region II  conditions, which                                                               
are different than  the other regions. In particular  it has more                                                               
dynamic rivers  that overlap with  areas that have  potential for                                                               
commercial forestry. In  Region II the volume of  timber is lower                                                               
than  other  regions,  but  the  fishery  values  are  high.  For                                                               
instance, Region II  represents just 11 percent of  the land area                                                               
in the state and it has between  30 percent and 50 percent of the                                                               
recreational sport fishing.                                                                                                     
3:47:10 PM                                                                                                                    
MS. FREEMAN related  that the bill broadens the  buffers on large                                                               
dynamic rivers and  narrows the buffers on  smaller streams. This                                                               
was a  concern to the  timber industry because small  streams are                                                               
numerous and  difficult to plan  around. She described this  as a                                                               
specifically tailored balance.                                                                                                  
SENATOR  BEN STEVENS  recalled  the rewrite  for  Region III  and                                                               
asked if the set backs are similar.                                                                                             
MS. FREEMAN replied  the buffers are different in  each region to                                                               
accommodate  specific conditions.  Region II  is quite  different                                                               
from  Region III  because  of  the number  of  large rivers  that                                                               
overlap  with  timber that  has  commercial  potential. She  said                                                               
wider buffers  are needed on  those stream types because  the way                                                               
they  recruit wood  into  the  stream to  form  islands and  side                                                               
channels is by eroding the banks  as the channels shift. The side                                                               
channels are particularly important for fish habitat.                                                                           
SENATOR BEN  STEVENS asked if  the percentage of wide  buffers is                                                               
greater in Region II than in Region III.                                                                                        
MS. FREEMAN responded Region II  has more large and small rivers,                                                               
but  it's an  overall  package  that is  reasonable  in terms  of                                                               
protecting  the  resources and  the  impact  that would  have  on                                                               
3:49:20 PM                                                                                                                    
JAMES DURST,  Office of Habitat  Management (OHM),  Department of                                                               
Natural Resources  (DNR), Fairbanks, said DNR/OHM  fully supports                                                               
the process and the outcome.                                                                                                    
CHAIR WAGONER closed the public hearing.                                                                                        
SENATOR BEN  STEVENS asked  where he  could find  definitions for                                                               
the different stream and river types.                                                                                           
MS. FREEMAN  replied the  last section of  the bill  contains the                                                               
specific definitions  for the water  bodies that are  specific to                                                               
Region II.  Each region has  its own classification  system based                                                               
on the stream type, the  topography, and the distribution of fish                                                               
in the particular stream.                                                                                                       
SENATOR BEN  STEVENS asked if she  was referring to Section  6 on                                                               
page 8.                                                                                                                         
MS. FREEMAN said yes.                                                                                                           
3:51:11 PM                                                                                                                    
SENATOR  BERT   STEDMAN  moved  to  report   CSHB  420(FSH)  from                                                               
committee  with individual  recommendations  and attached  fiscal                                                               
note. No objection was stated, and it was so ordered.                                                                           
3:51:49 PM at ease 3:52:45 PM                                                                                               
                    ^Pt. Thomson Unit update                                                                                
CHAIR  WAGONER announced  the next  order of  business was  a Pt.                                                               
Thomson  update.   He  recapped   a  conversation  he   had  with                                                               
Commissioner  Menge  some months  ago  when  Exxon was  given  an                                                               
additional  six-month extension.  At that  time the  commissioner                                                               
indicated  that was  the last  extension Exxon  was entitled  to.                                                               
Noting that  the process had taken  years, he asked if  there was                                                               
an end in sight.                                                                                                                
MICHAEL  MENGE,  Commissioner  Designee,  Department  of  Natural                                                               
Resources (DNR),  said next  year would mark  30 years  since Pt.                                                               
Thomson was unitized and it has  yet to show benefit to the State                                                               
of Alaska. Describing Pt. Thompson  as pivotal and integral under                                                               
the  current  negotiations  for  a gas  pipeline,  he  said  that                                                               
without  that piece  there would  be no  pipeline. The  reason is                                                               
that Prudhoe Bay is still actively  producing oil so the gas that                                                               
is  taken  from  the  Prudhoe  Bay  reservoir  will  be  strictly                                                               
monitored to  ensure that  it doesn't  impact oil  production. As                                                               
oil production declines more gas  will be taken from Prudhoe Bay,                                                               
but initially  Pt. Thompson  will provide much  of the  gas going                                                               
into the system.                                                                                                                
3:54:54 PM                                                                                                                    
SENATOR SEEKINS arrived.                                                                                                        
COMMISSIONER MENGE  said it's  time to  take definitive  steps to                                                               
bring this process  to an end and last November  he took the step                                                               
to delay execution  of the faultfinding date to May  31. Doing so                                                               
did  not   diminish  the  State's  authority   either  to  compel                                                               
development of the resource or to take the leases back.                                                                         
He presented  four possibilities  open to  Exxon relating  to the                                                               
upcoming deadline.                                                                                                              
   1. Ask for another extension.                                                                                                
   2. Provide an acceptable plan of development.                                                                                
   3. Appeal the director's decision.                                                                                           
   4. Do nothing.                                                                                                               
COMMISSIONER MENGE  outlined four possibilities that  are open to                                                               
the Department of Natural Resources.                                                                                            
   1. Take the draconian step of ordering the unit into                                                                         
   2. Find the unit in default and initiate dissolution                                                                         
     procedures on the unit.                                                                                                    
   3. Order the currently held leases with certified wells into                                                                 
   4. Provide another extension.                                                                                                
COMMISSIONER MENGE  said although he  has the authority  to order                                                               
the leases into production, doing  so would be a very challenging                                                               
step for him to  take, but in any event he  would not barter away                                                               
the State's tremendous leverage.                                                                                                
COMMISSIONER MENGE said that each  of the options at his disposal                                                               
comes with a definable series  of reactions that would benefit or                                                               
hinder  the  State's effort  to  commercialize  North Slope  gas.                                                               
These critical  issues must and  will be resolved to  benefit the                                                               
people of the State of Alaska, he vowed.                                                                                        
4:01:05 PM                                                                                                                    
CHAIR WAGONER questioned  how much longer Exxon  would be allowed                                                               
to delay  drilling exploration wells  because without them  it is                                                               
difficult to know what kind of plan-to-develop to enter into.                                                                   
COMMISSIONER  MENGE  agreed and  described  the  gas reserves  in                                                               
terms of a  pie. Two thirds of the reserves  have been proven and                                                               
the existence  of the final  third will  be proven or  not proven                                                               
based  on the  additional drilling.  The  gas that  is proven  by                                                               
virtue  of  the  certified  wells  and  the  additional  drilling                                                               
defined the 9 Tcf of gas. That  9 Tcf of gas coupled with Prudhoe                                                               
Bay  will  be  used  in  the  negotiations  for  a  gas  pipeline                                                               
CHAIR WAGONER asked how much oil Point Thompson has.                                                                            
BILL  VANDYKE, Director,  Division of  Oil &  Gas, Department  of                                                               
Natural Resources (DNR), answered  gas condensate is probably the                                                               
bulk of the liquid that will  come out of Point Thompson, but the                                                               
limited data available  indicates a fairly viscous  oil leg under                                                               
parts of  the unit. In all  likelihood, he said, the  gas liquids                                                               
amount to a couple hundred million barrels.                                                                                     
CHAIR  WAGONER  asked  if  17   percent  or  18  percent  of  the                                                               
production is liquid.                                                                                                           
MR. VANDYKE replied the liquid  content is similar to Prudhoe Bay                                                               
4:04:24 PM                                                                                                                    
CHAIR  WAGONER questioned  whether  Exxon would  ask for  another                                                               
COMMISSIONER MENGE  replied based  on legislative  proceedings in                                                               
the  next several  weeks it  would be  reasonable to  assume they                                                               
CHAIR WAGONER asked if they would request a change in the lease.                                                                
COMMISSIONER  MENGE  said he  wasn't  aware  of any  changes.  He                                                               
elaborated  that   Point  Thompson   is  a   very  high-pressured                                                               
reservoir  and  a  liquids  only production  would  be  a  costly                                                               
operation.  He noted  that given  that  Exxon is  in default  the                                                               
State is  at a significant advantage.  Everyone, including Exxon,                                                               
recognizes the leverage  the State has and  given the performance                                                               
of the  courts on  unit lease  issues, the State  is in  a pretty                                                               
good position.                                                                                                                  
4:06:26 PM                                                                                                                    
SENATOR RALPH  SEEKINS asked what benefit  Alaskans would receive                                                               
in granting another extension.                                                                                                  
COMMISSIONER MENGE replied it might  give the legislature time to                                                               
contemplate the gas contract.                                                                                                   
SENATOR SEEKINS  asked how  long it would  take to  develop Point                                                               
COMMISSIONER MENGE replied the gas  would be developed contiguous                                                               
with the gas into the system, which is eight years or so.                                                                       
SENATOR  SEEKINS said  with  that  in mind,  how  long would  the                                                               
extension be.                                                                                                                   
COMMISSIONER  MENGE   responded  he  could  defend   granting  an                                                               
extension   until  the   legislature   was   finished  with   its                                                               
considerations.  Beyond that  there is  no reason  to extend  the                                                               
current 30-year process, he said.                                                                                               
SENATOR  SEEKINS  cited constituent  concerns  related  to a  gas                                                               
pipeline   contract  without   a  date-certain   construction  or                                                               
delivery  agreement.  People  are  getting  tired  of  the  foot-                                                               
dragging, he said.                                                                                                              
CHAIR  WAGONER  agreed  that people  are  getting  impatient  and                                                               
that's why he asked for the update.                                                                                             
4:10:38 PM                                                                                                                    
SENATOR KIM  ELTON cited page 9  of the October 27,  2005 amended                                                               
decision that  says DNR  won't accept  Exxon's proposal  to amend                                                               
the  expansion  agreement  by  tying   it  to  the  Stranded  Gas                                                               
Development  Act.  He  asked  if DNR's  plans  have  changed  and                                                               
whether any  of the previously mentioned  possibilities for Exxon                                                               
or the State  have become part of the discussion  on the Stranded                                                               
Gas Development Act.                                                                                                            
COMMISSIONER MENGE replied Point Thompson  is an integral part of                                                               
the North Slope commercialization project  and on May 10 he hopes                                                               
to be able to elaborate.                                                                                                        
SENATOR ELTON  asked him to  outline what  led him to  change the                                                               
department's  direction  since July  27,  2005  when he  said  he                                                               
wouldn't accept Exxon's proposal  to negotiate these things under                                                               
the Stranded Gas Development Act.                                                                                               
COMMISSIONER MENGE said  he would defer to Mr.  Vandyke to review                                                               
the chronology and then he would explain the actions he took.                                                                   
MR. VANDYKE  said it's fair  to say  that Pt. Thomson  has always                                                               
been  in the  forefront of  the gas  line negotiations.  When the                                                               
unit  operator  asked  to  tie   Point  Thompson  development  or                                                               
drilling commitments  to the gas  line negotiations, DNR  did not                                                               
believe that was the  way to go. The people in  charge a year ago                                                               
wanted those authorities to remain  independent and separate from                                                               
any Point  Thompson commitments and  that's what was done  at the                                                               
time. As yet  there has been no deviation from  that position, he                                                               
4:15:46 PM                                                                                                                    
COMMISSIONER MENGE  clarified that  is a director's  decision and                                                               
if  it   were  appealed   it  would  be   appealed  to   him,  as                                                               
commissioner. He would  then make a decision and the  will of the                                                               
legislature and the governor would help him shape that decision.                                                                
4:16:24 PM                                                                                                                    
SENATOR  ELTON  said  he  suspects   that  foot-dragging  may  be                                                               
beneficial for  the unit operator if  the PPT passes in  close to                                                               
its present  form - particularly  with regard to the  credits. He                                                               
questioned whether  that is correct.  If so, he asked  the extent                                                               
of the financial benefit to the unit operator.                                                                                  
COMMISSIONER MENGE  replied his role  is to preserve  the State's                                                               
options  and  not  undercut  the  quality  of  the  legislature's                                                               
deliberations.  He opined  it  is probably  in  the State's  best                                                               
interest to  let the 30-year  long process  drag on for  weeks or                                                               
months longer,  but not  years. The answer,  he said,  depends on                                                               
the final actions the legislature takes and the governor takes.                                                                 
SENATOR  ELTON  said  assuming that  the  governor's  20/20  bill                                                               
passes, what  financial benefits would the  operator have accrued                                                               
by dragging its feet.                                                                                                           
COMMISSIONER MENGE  said he wasn't  trying to duck  the question,                                                               
but he really couldn't answer  because the 20/20 and the contract                                                               
are still soft on that issue.                                                                                                   
SENATOR BEN  STEVENS remarked the  easy answer is that  they have                                                               
benefited by the fact that the price  of oil has risen to $70 per                                                               
barrel and the state didn't do that.                                                                                            
SENATOR ELTON  said true,  but there are  wells that  should have                                                               
been  drilled  that haven't  been  and  he believes  Exxon  would                                                               
receive a credit.                                                                                                               
SENATOR BEN STEVENS  cited page 22 of the findings  and asked for                                                               
an explanation for  why the owners and operators  stated that the                                                               
gas cycling project wasn't commercially viable.                                                                                 
COMMISSIONER  MENGE replied  because the  reservoir is  very high                                                               
pressured and so a great deal  of gas energy and hardware will be                                                               
needed to  bring the gas up,  strip the liquids out,  and put the                                                               
gas  back down  in the  well. That  coupled with  the need  for a                                                               
pipeline and the  unknown risk factors lead Exxon  and perhaps BP                                                               
to say  it is not  economic. DNR may  have a different  view, but                                                               
the  economics  do  hinge  on  a balance  and  even  the  State's                                                               
economists  differ as  to  the economic  viability  of the  Point                                                               
Thompson liquids.                                                                                                               
4:22:40 PM                                                                                                                    
SENATOR  BEN STEVENS  asked if  the  claim that  the gas  cycling                                                               
project would not  be commercially viable relates  to the expense                                                               
of recycling the extremely high-pressure gas.                                                                                   
COMMISSIONER  MENGE said  he believes  that is  the BP  and Exxon                                                               
position. Ultimately,  the economic benefit is  defined by adding                                                               
total costs  versus the  price of  the product  that is  taken to                                                               
SENATOR BEN STEVENS noted that 18  wells have been drilled in and                                                               
around the  unit. He  asked if there  are accurate  estimates for                                                               
the Point Thompson reserve at this time.                                                                                        
MR. VANDYKE explained  there is an unknown area  in the northwest                                                               
part  of  the  unit,  but  the  core of  the  gas  pool  is  well                                                               
delineated. There  are two pods of  gas, but the extent  to which                                                               
they are connected is an unknown.                                                                                               
4:25:05 PM                                                                                                                    
SENATOR BEN  STEVENS asked if  the unit is  accurately delineated                                                               
for oil production.                                                                                                             
MR. VANDYKE responded it is  likely that 50,000 to 70,000 barrels                                                               
of marketable liquid could be produced  per day and then 1 Bcf to                                                               
2 Bcf of gas would be reinjected into the ground.                                                                               
SENATOR  BEN  STEVENS  again  asked  whether  Point  Thompson  is                                                               
delineated enough to produce an economic oil field.                                                                             
COMMISSIONER MENGE  restated the  question and asked  Mr. Vandyke                                                               
what  the volume  of liquids  is  in the  area that  is known  to                                                               
MR. VANDYKE answered it's  in the range of 8 Tcf or  9 Tcf of gas                                                               
and  2  Mcf or  3  Mcf  of liquids  would  be  produced. The  oil                                                               
production would  not be  significant if the  effort was  to only                                                               
produce the  oil leg because  the gas must  be cycled to  get the                                                               
bulk of the liquids.                                                                                                            
SENATOR  BEN STEVENS  said he  understands that,  but he  doesn't                                                               
know enough  to agree or disagree  with the statement that  a gas                                                               
cycling project at Point Thompson  is not commercially viable. He                                                               
too is frustrated by the delay, but  if Exxon is forced to a duty                                                               
to  produce  the   production  has  to  be   within  the  current                                                               
infrastructure because there's nowhere to go with the dry gas.                                                                  
CHAIR WAGONER  pointed out that  the document was  written before                                                               
PPT and  that will  have a  large bearing  on the  economics once                                                               
they get the credits.                                                                                                           
4:30:04 PM                                                                                                                    
SENATOR BEN  STEVENS said  even if PPT  passes with  an incentive                                                               
for  development, he  wouldn't think  there  would be  production                                                               
from that area until there's  an outlet for the high-pressure dry                                                               
SENATOR  ELTON  directed  attention  to page  2  of  the  amended                                                               
decision,  which says  Point Thompson  is commercial  and can  be                                                               
produced without a gas pipeline.  As Senator Stevens pointed out,                                                               
on page 22 the owners disagree  with that decision. That point is                                                               
the nut that  has elicited argument for the last  2 or 3 decades,                                                               
he said.                                                                                                                        
SENATOR BEN STEVENS commented, the  owners did not write page 22;                                                               
it was part of the decision so the question remains.                                                                            
SENATOR SEEKINS said  he was seeking assurance from  DNR that the                                                               
delay is not  because the leaseholder is waiting  for the optimum                                                               
time to develop the product.                                                                                                    
COMMISSIONER MENGE pledged that the  State's best interest is the                                                               
driving force behind his decisions.                                                                                             
4:34:06 PM                                                                                                                    
CHAIR  WAGONER read  a portion  of a  July 27,  2005 letter  from                                                               
former Director Meyers to Richard  Owens that stated the punitive                                                               
action the State  would take if Exxon modified  the 22nd plan-of-                                                               
development, but failed to drill  by June 15, 2006. What punitive                                                               
action would  the State take to  force the unit owner  to do what                                                               
should have been done 15 years ago, he asked.                                                                                   
COMMISSIONER MENGE  said the director's  decision holds  the unit                                                               
owner in  default and if Exxon  appeals that decision to  me, "we                                                               
will  do   the  analysis  and   will  come  down  with   a  final                                                               
administrative action  in that  regard." Exxon  has the  right to                                                               
appeal the commissioner's  decision to the courts,  but the State                                                               
generally wins those decisions.                                                                                                 
CHAIR WAGONER closed the hearing on Point Thompson.                                                                             
                     ^Confirmation Hearing                                                                                  
^Michael Menge, Commissioner, Department of Natural Resources                                                                 
4:36:31 PM                                                                                                                    
CHAIR  WAGONER   announced  the  committee  would   take  up  the                                                               
confirmation  hearing for  Michael Menge  as commissioner  of the                                                               
Department of Natural Resources.                                                                                                
MICHAEL  MENGE,  Commissioner  designee,  Department  of  Natural                                                               
Resources (DNR) highlighted his  30-year state and federal career                                                               
and  pledged  to  always  give  honest  opinions  and  forthright                                                               
suggestions. We  may not  always agree, he  said, but  our common                                                               
interest is the people we serve.                                                                                                
4:39:21 PM                                                                                                                    
SENATOR  DYSON moved  to advance  the  name of  Michael Menge  as                                                               
commissioner  of   the  Department   of  Natural   Resources  for                                                               
consideration by the full legislature.  He noted that agreeing to                                                               
advance the confirmation  does not indicate an  intention to vote                                                               
either for  or against  the appointee.  No objection  was stated,                                                               
and the confirmation was advanced.                                                                                              
There being  no further  business to  come before  the committee,                                                               
Chair Wagoner adjourned the meeting at 4:39:57 PM.                                                                            

Document Name Date/Time Subjects