Legislature(2011 - 2012)BUTROVICH 205

03/28/2011 03:30 PM RESOURCES

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Bills Previously Heard/Scheduled
Heard & Held
Question/Answers by Departments/Agencies:
Heard & Held
-- Includes Public Comment --
Moved CSHJR 19(RES) Out of Committee
-- Includes Public Comment --
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                         March 28, 2011                                                                                         
                           3:39 p.m.                                                                                            
MEMBERS PRESENT                                                                                                              
Senator Joe Paskvan, Co-Chair                                                                                                   
Senator Thomas Wagoner, Co-Chair                                                                                                
Senator Bill Wielechowski, Vice Chair                                                                                           
Senator Bert Stedman                                                                                                            
Senator Lesil McGuire                                                                                                           
Senator Hollis French                                                                                                           
Senator Gary Stevens                                                                                                            
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
OTHER LEGISLATORS PRESENT                                                                                                     
Senator Cathy Giessel                                                                                                           
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 85                                                                                                              
"An Act providing for a tax credit applicable to the oil and gas                                                                
production tax based on the cost of developing new oil and gas                                                                  
production; and providing for an effective date."                                                                               
     - HEARD & HELD                                                                                                             
CS FOR HOUSE JOINT RESOLUTION NO. 19(RES)                                                                                       
Urging the United States Senate to ratify the United Nations                                                                    
Convention on the Law of the Sea.                                                                                               
     - MOVED CSHJR 19(RES) OUT OF COMMITTEE                                                                                     
SENATE CONCURRENT RESOLUTION NO. 9                                                                                              
Creating the Taku River Task Force as a joint legislative task                                                                  
     - HEARD & HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB  85                                                                                                                  
SHORT TITLE: TAX CREDIT FOR NEW OIL & GAS DEVELOPMENT                                                                           
SPONSOR(s): SENATOR(s) WAGONER                                                                                                  
02/07/11       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/07/11       (S)       RES, FIN                                                                                               
02/25/11       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/25/11       (S)       Heard & Held                                                                                           
02/25/11       (S)       MINUTE(RES)                                                                                            
02/28/11       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/28/11       (S)       Heard & Held                                                                                           
02/28/11       (S)       MINUTE(RES)                                                                                            
03/07/11       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/07/11       (S)       Heard & Held                                                                                           
03/07/11       (S)       MINUTE(RES)                                                                                            
03/09/11       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/09/11       (S)       Heard & Held                                                                                           
03/09/11       (S)       MINUTE(RES)                                                                                            
03/25/11       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/25/11       (S)       Heard & Held                                                                                           
03/25/11       (S)       MINUTE(RES)                                                                                            
03/28/11       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
BILL: HJR 19                                                                                                                  
SHORT TITLE: URGING US TO RATIFY LAW OF THE SEA TREATY                                                                          
SPONSOR(s): ECON. DEV., TRADE & TOURISM                                                                                         
03/07/11       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/07/11       (H)       EDT, RES                                                                                               
03/08/11       (H)       EDT AT 10:15 AM BARNES 124                                                                             
03/08/11       (H)       Moved CSHJR 19(EDT) Out of Committee                                                                   
03/08/11       (H)       MINUTE(EDT)                                                                                            
03/09/11       (H)       EDT RPT CS(EDT) 7DP 1DNP 1NR                                                                           
03/09/11       (H)       DP: GARDNER, THOMPSON, MUNOZ, JOULE,                                                                   
                         TUCK, FOSTER, HERRON                                                                                   
03/09/11       (H)       DNP: KELLER                                                                                            
03/09/11       (H)       NR: OLSON                                                                                              
03/14/11       (H)       RES AT 1:00 PM BARNES 124                                                                              
03/14/11       (H)       Moved CSHJR 19(RES) Out of Committee                                                                   
03/14/11       (H)       MINUTE(RES)                                                                                            
03/16/11       (H)       RES RPT CS(RES) 5DP 1DNP 2NR                                                                           
03/16/11       (H)       DP: GARDNER, MUNOZ, P.WILSON, HERRON,                                                                  
03/16/11       (H)       DNP: DICK                                                                                              
03/16/11       (H)       NR: KAWASAKI, FEIGE                                                                                    
03/16/11       (H)       TRANSMITTED TO (S)                                                                                     
03/16/11       (H)       VERSION: CSHJR 19(RES)                                                                                 
03/18/11       (S)       READ THE FIRST TIME - REFERRALS                                                                        
03/18/11       (S)       RES                                                                                                    
03/28/11       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
BILL: SCR  9                                                                                                                  
SHORT TITLE: TAKU RIVER TASK FORCE                                                                                              
SPONSOR(s): SENATOR(s) EGAN                                                                                                     
03/28/11       (S)       READ THE FIRST TIME - REFERRALS                                                                        
03/28/11       (S)       RES                                                                                                    
03/28/11       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
WITNESS REGISTER                                                                                                              
CATHY FORESTER, Commissioner                                                                                                    
Alaska Oil and Gas Conservation Commission                                                                                      
Anchorage, AK                                                                                                                   
POSITION STATEMENT: Answered questions related to SB 85.                                                                      
KEVIN BANKS, Director                                                                                                           
Division of Oil and Gas                                                                                                         
Department of Natural Resources                                                                                                 
Anchorage, AK                                                                                                                   
POSITION STATEMENT:                                                                                                           
REPRESENTATIVE BOB HERRON                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, AK                                                                                                                      
POSITION STATEMENT: Introduced HJR 19 on behalf of the House                                                                  
Special Committee on Economic Development, Trade, and Tourism.                                                                  
CAITLYN ANTRIM, Executive Director                                                                                              
Rule of Law Committee for the Oceans                                                                                            
Arlington, Virginia                                                                                                             
POSITION STATEMENT: Provided a summary of the United Nations                                                                  
Convention on the Law of the Sea and identified areas of                                                                        
CATHY WASSERMAN, Executive Director                                                                                             
Alaska Municipal League (AML), stated that AML passed a                                                                         
resolution urging Congress to ratify UNCLOS because it would                                                                    
enhance the economic development of Alaska municipalities.                                                                      
POSITION STATEMENT: Testified in support of HJR 19 urging                                                                     
Congress to ratify the Law of the Sea treaty.                                                                                   
JESSE KIEHL, Staff                                                                                                              
Senator Dennis Egan                                                                                                             
Alaska State Legislature                                                                                                        
Juneau, AK                                                                                                                      
POSITION STATEMENT: Introduced SCR 9 on behalf of the sponsor.                                                                
KIRK HARDCASTLE, Commercial Fisherman and                                                                                       
Taku River Reds                                                                                                                 
Juneau, AK                                                                                                                      
POSITION STATEMENT: Supported SCR 9.                                                                                          
CHRIS CASEY, Fly Fishing Guide                                                                                                  
POSITION STATEMENT: Supported SCR 9.                                                                                          
NEIL MACKINNON, Secretary                                                                                                       
Taku Users Group                                                                                                                
Juneau, AK                                                                                                                      
POSITION STATEMENT: Opposed SCR 9.                                                                                            
CHERI RUDOLPH, President                                                                                                        
Taku River Recreational Association (                                                                                           
Juneau, AK                                                                                                                      
POSITION STATEMENT: Opposed SCR 9.                                                                                            
NIEL ATKINSON, representing himself                                                                                             
Juneau, AK                                                                                                                      
POSITION STATEMENT: Opposed SCR 9.                                                                                            
CARLEEN CONWAY, representing herself                                                                                            
Juneau, AK                                                                                                                      
POSITION STATEMENT: Opposed SCR 9.                                                                                            
ERROL CHAMPION, representing himself                                                                                            
Juneau, AK                                                                                                                      
POSITION STATEMENT: Opposed SCR 9.                                                                                            
JEV SHELTON, representing himself                                                                                               
Juneau, AK                                                                                                                      
POSITION STATEMENT: Supported SCR 9.                                                                                          
RON SOMERVILLE                                                                                                                  
Territorial Sportsmen Inc.                                                                                                      
Juneau, AK                                                                                                                      
POSITION STATEMENT: Opposed SCR 9.                                                                                            
ACTION NARRATIVE                                                                                                              
3:39:57 PM                                                                                                                    
CO-CHAIR  THOMAS WAGONER  called  the  Senate Resources  Standing                                                             
Committee meeting  to order at 3:39  p.m. Present at the  call to                                                               
order  were  Senators  French,  McGuire,  Wielechowski,  Stedman,                                                               
Paskvan and Wagoner.                                                                                                            
        SB  85-TAX CREDIT FOR NEW OIL & GAS DEVELOPMENT                                                                     
3:40:48 PM                                                                                                                    
CO-CHAIR  WAGONER  announced  the  consideration of  SB  85,  and                                                               
stated that he was maintaining his objection to version E.                                                                      
3:41:25 PM                                                                                                                    
CATHY  FORESTER, Commissioner,  Alaska Oil  and Gas  Conservation                                                               
Commission  (AOGCC), said  she would  respond  to questions  that                                                               
were submitted earlier. As to  whether the AOGCC could accept the                                                               
current  definition  of  "sustained  production,"  she  said  the                                                               
answer was yes.  As to how they feel about  using the term "pool"                                                               
as  the defining  mechanism for  a new  discovery, she  said they                                                               
don't feel  at all good  about that.  She related that  the AOGCC                                                               
asked  the Interstate  Oil and  Gas Compact  Commission to  query                                                               
other  states and  the two  that responded  warned against  using                                                               
"pool" because a development has  to be well underway before it's                                                               
possible  to ascertain  whether there  is more  than one  pool or                                                               
just  one  blanket  pool.  To  incentivize  more  than  just  one                                                               
operator to explore  and develop, the suggestion was  to use some                                                               
other than means to define a  new discovery, but nobody offered a                                                               
good alternative.                                                                                                               
CO-CHAIR WAGONER  asked if the  AOGCC talked to anybody  in North                                                               
MS. FORESTER replied the states  that responded were South Dakota                                                               
and Indiana.                                                                                                                    
CO-CHAIR  WAGONER reported  that someone  from North  Dakota told                                                               
him  their  defining  mechanism  for  a  new  discovery  was  two                                                               
sections of land.                                                                                                               
MS.  FORESTER responded  that AOGCC  supports using  a reasonable                                                               
unit of land,  and couldn't give a better answer  than that until                                                               
there was some production and a fair number of wells.                                                                           
SENATOR WIELECHOWSKI  noted that Great Bear  testified there were                                                               
multiple strata,  and asked if  she foresaw  difficulties arising                                                               
if a lease had three different strata of oil formations.                                                                        
MS. FORESTER explained  that each stratum should be  viewed as an                                                               
individual  pool,  because  they wouldn't  have  connectivity  or                                                               
CO-CHAIR  WAGONER   added  that   North  Dakota   addresses  that                                                               
situation the same way. The only  difference he found was that if                                                               
the  oil  is  on  two different  levels  within  the  two-section                                                               
boundary, there would be six wells instead of three.                                                                            
MS. FORESTER reiterated that each stratum would be a pool.                                                                      
SENATOR WIELECHOWSKI  asked if one well  could theoretically deal                                                               
with three pools.                                                                                                               
MS. FORESTER answered  yes, but an AOGCC permit  to co-mingle the                                                               
pools would  be necessary. Co-mingling  would require  proof that                                                               
the recovery wouldn't create waste;  the production would have to                                                               
be  as  good  as  or  better  than  if  each  pool  was  produced                                                               
SENATOR WIELECHOWSKI  referenced page 3, lines  16-18, that talks                                                               
about qualified development expenditures,  and asked if operating                                                               
expense  (opex) might  be included  in that  type of  exploration                                                               
MS.  FORESTER  answered it  was  the  committee's prerogative  to                                                               
define things  in the  bill, but in  general operating  costs are                                                               
the costs of producing. Operating  costs typically begin once the                                                               
well starts  to operate,  and includes  things like  performing a                                                               
workover to fix  broken wells, paying an operator  to turn valves                                                               
and feeding  people who  work in  the camp. The  costs up  to the                                                               
point that  production begins would  be allocated  to exploration                                                               
and development.                                                                                                                
CO-CHAIR  PASKVAN asked  hypothetically how  many wells  could be                                                               
drilled in 365 days at the Bakken Shale Oil Field.                                                                              
MS.  FORESTER replied  she didn't  have  enough familiarity  with                                                               
that operation to give an answer.                                                                                               
CO-CHAIR PASKVAN asked where he could get an answer.                                                                            
MS.  FORESTER offered  to ask  the  question of  Lynn Helms,  her                                                               
counterpart at IOGCC.                                                                                                           
3:49:23 PM                                                                                                                    
CO-CHAIR PASKVAN clarified that he  wanted to know how many wells                                                               
each  of  20 drill  rigs  could  drill  in  one year's  time.  He                                                               
explained that  that was  where they  would define  the qualified                                                               
development  expenditure  as to  whether  or  not production  was                                                               
going on.                                                                                                                       
SENATOR WIELECHOWSKI asked if it  presented a challenge to define                                                               
heavy oil in a pool.                                                                                                            
MS. FORESTER  replied there are  two groups of heavy  and viscous                                                               
oil.  One is  the West  Sak/Schrader Bluff,  which varies  in oil                                                               
viscosity from very  viscous and hard to produce  to less viscous                                                               
and  easier to  produce. The  less viscous  oil is  already being                                                               
developed. The other very viscous heavy  oil is found in the Ugnu                                                               
and a very small  area is currently under pilot to  see if it can                                                               
be produced.  A lot of both  the West Sak/Schrader Bluff  and the                                                               
Ugnu  are  not  developable  with  current  technology,  and  the                                                               
defining mechanism  for those  separate blanket  reservoirs would                                                               
be on viscosity,  not new pool. The low viscosity  oil is already                                                               
under production,  and the high viscosity  hard-to-get oil should                                                               
be incentivized.                                                                                                                
3:51:52 PM                                                                                                                    
SENATOR STEVENS joined the committee.                                                                                           
SENATOR  WIELECHOWSKI  asked  if  she  foresaw  any  problems  in                                                               
defining a pool of heavy oil.                                                                                                   
MS. FORESTER  replied the  West Sak/Schrader  Bluff and  the Ugnu                                                               
are each individual big pools  by the AOGCC's definition. And for                                                               
the sake  of what  the committee  is trying  to do,  the standard                                                               
definition  of  "pool"  doesn't  work.   She  said  it  works  in                                                               
conventional  reservoirs, but  not in  unconventional reservoirs.                                                               
Viscous oil, shale oil and gas  and probably coal bed methane are                                                               
SENATOR   WIELECHOWSKI   asked   her   to   describe   "sustained                                                               
MS. FORESTER replied  the definition says production  goes into a                                                               
sale  and doesn't  include testing,  evaluation  and pilots.  The                                                               
Ugnu is called a pilot, but once  it gets into a pipeline it's on                                                               
SENATOR  WIELECHOWSKI recapped  that  sustained production  means                                                               
when it goes in a pipeline.                                                                                                     
MS. FORESTER replied  that's the definition in  the statutes, and                                                               
the  AOGCC  has no  difficulty  understanding  and applying  that                                                               
3:55:25 PM                                                                                                                    
CO-CHAIR PASKVAN asked, in a shale  oil field, how long it takes,                                                               
on average, from the start of drilling to first production.                                                                     
MS.  FORESTER replied  she would  ask Lynn  Helms that  question,                                                               
because neither  she nor Mr.  Seamount had experience  with shale                                                               
oil or gas development.                                                                                                         
CO-CHAIR WAGONER asked if on the  first well it would be the well                                                               
itself, a pipeline,  a treatment plant and an  agreement to enter                                                               
the TAPS.                                                                                                                       
MS. FORESTER agreed.                                                                                                            
SENATOR WIELECHOWSKI referenced  an AOGCC chart and  asked if she                                                               
could explain the variations in  time for bringing on North Slope                                                               
oil fields. Kuparuk River Melt Water  took a year and one-half to                                                               
bring to regular production,  whereas Coleville River/Nanook took                                                               
six and  one-half years  and Nokia Chuck  at Schrader  Bluff took                                                               
six and three-fourth years.                                                                                                     
MS.   FORESTER   replied  one   thing   was   proximity  to   the                                                               
infrastructure  and   another  was  having  all   the  commercial                                                               
agreements  in   place.  Any  problems  with   either  will  slow                                                               
3:58:19 PM                                                                                                                    
SENATOR STEDMAN asked about the  status of AOGCC's data gathering                                                               
task regarding how may well feet were drilled.                                                                                  
MS. FORESTER replied it was  just about finished and Mr. Seamount                                                               
would deliver it the next time he was in Juneau.                                                                                
SENATOR STEDMAN expressed a desire  for the committee to hear the                                                               
MS. FORESTER confirmed that AOGCC  would deliver the presentation                                                               
at the committee's convenience.                                                                                                 
CO-CHAIR WAGONER  thanked Ms.  Forester and  asked if  there were                                                               
questions for Mr. Banks.                                                                                                        
3:59:53 PM                                                                                                                    
CO-CHAIR PASKVAN  asked Mr. Banks  how long  it takes in  a shale                                                               
oil field from the start of drilling to sustained production.                                                                   
KEVIN BANKS,  Director, Division  of Oil  and Gas,  Department of                                                               
Natural Resources  (DNR), replied a  company doing work  in North                                                               
Dakota said that  the actual drilling can go  fairly quickly, but                                                               
that the  fracking process can  cause a slowdown, because  only a                                                               
certain  number  of frac  crews  are  available. He  opined  that                                                               
Commissioner Forester  should be able  to provide a  good average                                                               
estimate based on information from the folks in North Dakota.                                                                   
He  said  he  wanted  to   confirm  agreement  with  Commissioner                                                               
Forester's comments  on viscosity  and heavy oil.  It's difficult                                                               
to know  what type of oil  will be produced until  exploration is                                                               
well  underway,  but  how  credit  is  awarded  under  SB  85  is                                                               
certainly  the  single  most important  variable  in  identifying                                                               
heavy oil in Alaska. Division  staff has been challenged to think                                                               
about things  like depth of  drilling and productivity of  a well                                                               
as the defining  mechanism for heavy oil, but every  one of those                                                               
things  falls  short  of  simply identifying  heavy  oil  by  its                                                               
SENATOR FRENCH  asked how much  it costs to drill  an exploration                                                               
oil well on the North Slope.                                                                                                    
MR. BANKS  replied the numbers  go all  over the map.  Wells that                                                               
were  drilled in  the  southwestern  part of  the  NPR-A cost  in                                                               
excess of  $70-80 million, whereas  wells drilled at  Pt. Thomson                                                               
were probably closer to $100  million. In Alaska, shale wells may                                                               
cost  $20-25 million  depending  on the  distance  from the  Haul                                                               
Road.  He noted  that  information from  an earlier  presentation                                                               
indicated that  the average cost for  a well in North  Dakota was                                                               
$6.1 million.                                                                                                                   
SENATOR FRENCH asked if those were exploration wells.                                                                           
MR. BANKS answered no, those  were shale wells. He estimated that                                                               
a North  Slope exploration well that  was close to the  Haul Road                                                               
would cost about $25-30 million.                                                                                                
SENATOR FRENCH asked what would  be considered a healthy level of                                                               
exploration wells drilled  every year, and noted  that since 2003                                                               
the number was about 10 wells per year.                                                                                         
MR. BANKS answered "the more the merrier."                                                                                      
SENATOR  FRENCH  questioned  whether   the  focus  should  be  on                                                               
encouraging more  exploration wells  or on the  development costs                                                               
to bring a pool of oil to production.                                                                                           
MR. BANKS  responded that  Alaska is  challenged with  high costs                                                               
and remoteness,  and the state has  very few levers to  pull that                                                               
would have an effect on cost.                                                                                                   
SENATOR FRENCH asked  what percent of the cost  of an exploration                                                               
well is state subsidized through credits under ACES.                                                                            
MR. BANKS  replied it would depend  on how far the  well was from                                                               
existing infrastructure,  but it could  be the 40  percent direct                                                               
exploration credit plus  the net operating losses.  He offered to                                                               
follow up with a more exact answer.                                                                                             
SENATOR FRENCH expressed  concern that the bill  was unclear with                                                               
regard to  what it  would cost  the state.  He suggested  that an                                                               
alternative  would be  for the  state to  annually appropriate  a                                                               
sizeable amount of money to  stimulate 10 exploration wells. Once                                                               
the   money  was   gone  that   would  be   it  until   the  next                                                               
4:08:22 PM                                                                                                                    
CO-CHAIR WAGONER  asked how to  define an exploratory  shale well                                                               
as opposed  to a production  well, and  the number of  wells that                                                               
had been drilled through the shale structures.                                                                                  
MR. BANKS offered  to follow up with an exact  number, but it was                                                               
very few. To  define a shale prospect for the  purposes of SB 85,                                                               
he suggested  using area rather  than the normal definition  of a                                                               
pool,  because the  credit may  not be  available to  anyone else                                                               
once the  once development  and production  started on  the first                                                               
set of wells.                                                                                                                   
4:11:28 PM                                                                                                                    
]BRUCE  TANGEMAN,  Deputy  Commissioner,  Department  of  Revenue                                                               
(DOR), introduced himself.{                                                                                                     
CO-CHAIR WAGONER  asked if  the committee  had any  questions for                                                               
Mr. Tangeman.                                                                                                                   
SENATOR FRENCH asked  what percent of the cost  of an exploration                                                               
well is state-subsidized through credits under ACES.                                                                            
MR.  TANGEMAN replied  that for  the exploration  stage companies                                                               
would be eligible  for up to a 40 percent  exploration credit and                                                               
a  25  percent net  operating  loss  credit  for  a total  of  65                                                               
CO-CHAIR WAGONER observed that the  Great Bear properties had the                                                               
advantage  of proximity  to the  pipeline, which  would make  the                                                               
price relatively low for the first well to go into production.                                                                  
SENATOR   STEDMAN  referenced   Senator  French's   question  and                                                               
clarified that the  65 percent would be contributed  by the state                                                               
and federal  government and the  remaining 35 percent  would come                                                               
from  industry.   He  expressed  a   desire  to  hear   from  the                                                               
administration or  the consultants with  regard to where  else in                                                               
the world that magnitude of credit was available.                                                                               
CO-CHAIR  WAGONER said  his understanding  of SB  85 was  that it                                                               
addresses credit for production; it does not cover exploration.                                                                 
MR.  TANGEMAN  said  DOR's  reading  of  the  bill  was  that  it                                                               
incentivizes development;  the expenses  that go into  that stage                                                               
would  be  credited  against  a  tax  liability  once  production                                                               
SENATOR FRENCH  asked if cost ever  precluded development because                                                               
his sense was that once a pool  of oil is found, there's money to                                                               
develop it. The  hard part is finding the oil  in the first place                                                               
and that's where the analysis has to take place.                                                                                
4:16:27 PM                                                                                                                    
MR. TANGEMAN suggested he ask DNR that question.                                                                                
SENATOR  FRENCH said  Armstrong or  some other  company that  was                                                               
actively exploring  could say they'd  found oil but  couldn't get                                                               
the  money  to  build  a  production facility  to  get  it  to  a                                                               
MR.  TANGEMAN offered  his  understanding that  FEX  was in  that                                                               
position; they  found oil and  eventually gave their  leases back                                                               
to the state.                                                                                                                   
SENATOR FRENCH said he'd look into that.                                                                                        
SENATOR  WIELECHOWSKI asked,  under current  law, if  DOR or  DNR                                                               
audited qualified capital expenditures.                                                                                         
MR.   TANGEMAN  replied   DOR   audits   the  qualified   capital                                                               
SENATOR WIELECHOWSKI  recalled that Gaffney Kline  testified that                                                               
there was  a worry about gold  plating if credits were  more than                                                               
40 percent.  He asked  if the  administration had  concerns about                                                               
giving 100 percent for capital  expenditures and there being gold                                                               
MR.  TANGEMAN  replied  DOR's  concern  with SB  85  was  how  it                                                               
interacts with  the current tax  credit structure.  Initially the                                                               
bill said  a company  could take either  the existing  tax credit                                                               
structure or the one proposed under  SB 85. Now the bill says the                                                               
current tax credit  structure would stay in place  so the company                                                               
would have to  carry the costs during the  development stage, but                                                               
they  could  be  100  percent reimbursed  during  the  production                                                               
stage. DOR's  concern with  the current  language is  making sure                                                               
that qualified reimbursement is capped at 100 percent.                                                                          
CO-CHAIR   PASKVAN   asked  if   he   agreed   with  Mr.   Bank's                                                               
interpretation of  the current version  of SB 85: that  the first                                                               
shale oil  well may be  the only one  that would qualify  for the                                                               
MR.  TANGEMAN replied  he would  defer to  Director Banks  on the                                                               
technical aspects, but that was one  of the issues related to the                                                               
definition of a pool, and when  the clock starts and stops in the                                                               
development stage.                                                                                                              
CO-CHAIR WAGONER  recognized that  Representative Bob  Herron had                                                               
joined the meeting.                                                                                                             
CO-CHAIR WAGONER thanked the participants  and announced he would                                                               
hold SB 85 in committee.                                                                                                        
4:20:52 PM                                                                                                                    
At ease                                                                                                                         
        HJR 19-URGING US TO RATIFY LAW OF THE SEA TREATY                                                                    
4:22:48 PM                                                                                                                    
CO-CHAIR WAGONER announced the consideration  of HJR 19 and asked                                                               
for a motion to bring the resolution before the committee.                                                                      
CO-CHAIR  PASKVAN  moved  to  bring   CSHJR  19(RES)  before  the                                                               
committee, version D.  [Version D was transmitted  from the House                                                               
to the Senate 3/16/11.]                                                                                                         
CO-CHAIR  WAGONER objected  and  asked  Representative Herron  to                                                               
present the bill.                                                                                                               
REPRESENTATIVE  BOB  HERRON,  speaking  on behalf  of  the  House                                                               
Special Committee  on Economic  Development, Trade,  and Tourism,                                                               
sponsor  of  HJR 19,  stated  that  U.S. Senator  Lisa  Murkowski                                                               
supports this resolution,  which urges the U.S.  Senate to ratify                                                               
the United Nations Convention on the  Law of the Sea (UNCLOS). It                                                               
is important to all U.S. interests  in the use and development of                                                               
the high  seas off Alaska.  Under the  treaty, the U.S.  can gain                                                               
another 150 miles beyond the  exclusive economic zone (EEZ). This                                                               
386,000  square  mile  area has  great  economic  and  scientific                                                               
potential and  some would  say that by  not ratifying  the treaty                                                               
the  U.S. is  surrendering  sovereign  rights. Ratification  will                                                               
make the U.S. a leader  in the international Arctic community and                                                               
is in the best interest of Alaskans and all U.S. citizens.                                                                      
SENATOR FRENCH referenced  page 3, lines 21-22, and  asked if all                                                               
the current Joint Chiefs of Staff support ratification.                                                                         
REPRESENTATIVE  HERRON responded  that  all the  Joint Chiefs  of                                                               
Staff since Ronald  Reagan was president have  stated support for                                                               
SENATOR  FRENCH asked  for confirmation  that every  single joint                                                               
chief to a person supported ratification.                                                                                       
REPRESENTATIVE  HERRON  offered   his  understanding  that  those                                                               
collective Joint Chiefs of Staff have supported ratification.                                                                   
CO-CHAIR  PASKVAN observed  that every  military leader  that had                                                               
come  before  the Senate  in  the  last three  years  unanimously                                                               
supported ratification.                                                                                                         
CO-CHAIR WAGONER  commented that he ordinarily  would not support                                                               
anything that  abrogates sovereignty  to an  international panel,                                                               
but  he  became very  supportive  after  seeing the  Coast  Guard                                                               
presentation that showed Chinese  operations in waters that, with                                                               
ratification, would be under the control of the U.S.                                                                            
CO-CHAIR WAGONER opened public testimony.                                                                                       
4:28:55 PM                                                                                                                    
CAITLYN  ANTRIM, Executive  Director, Rule  of Law  Committee for                                                               
the  Oceans,   Arlington,  Virginia,  said  she   has  worked  on                                                               
virtually all of  the Law of the Sea conventions  since 1982, and                                                               
was asked  to give a  summary of  the convention and  to identify                                                               
areas of  interest. She  said one area  of particular  concern is                                                               
the exclusive economic  zone (EEZ) where the  U.S. has management                                                               
authority out 200 nautical miles. In  the Arctic the U.S. has the                                                               
authority  to impose  marine environmental  protection provisions                                                               
in ice-covered  areas if  the regulation  is based  on scientific                                                               
evidence  and  non-discrimination  among users.  She  highlighted                                                               
that that  authority was Russia's  principle legal  mechanism for                                                               
instituting   control  of   the  northern   sea  route.   On  the                                                               
continental  shelf,  the  U.S.  would  have  control  of  mineral                                                               
resources  in the  seabed  beyond the  EEZ.  With indications  of                                                               
hydrocarbon  in the  seabed, control  may  extend as  far as  600                                                               
miles from shore.  The area is even more promising  than when the                                                               
original  provisions were  drafted. She  said that  navigation is                                                               
also  a  critical  component  of the  convention,  and  the  most                                                               
critical part  is control  of straits  that would  otherwise fall                                                               
within  the 12-mile  territorial  sea. This  would  apply to  the                                                               
Bering  Strait and  would give  the U.S.  authority to  establish                                                               
traffic separation schemes.                                                                                                     
MS.  ANTRIM  explained that  the  primary  reason that  the  U.S.                                                               
didn't initially  join UNCLOS was disagreement  on the management                                                               
of  the  resources of  the  deep  seabed beyond  the  continental                                                               
shelf. Ronald Reagan identified six  areas as essential and would                                                               
only recommend the U.S. join  the convention if those were fixed.                                                               
In 1994  all six objections were  resolved and the U.S.  became a                                                               
provisional  member.  The  U.S. helped  shape  the  international                                                               
regime during its  four years of provisional  membership, but the                                                               
matter  was  not  brought  before the  U.S.  Senate  until  2003.                                                               
Efforts  to move  the process  forward have  been underway  since                                                               
that time.                                                                                                                      
MS. ANTRIM  said it's important  for the  U.S. to join  UNCLOS to                                                               
protect  commercial  navigation,  naval navigation  and  aviation                                                               
rights of  over-flight. Furthermore,  telecommunication companies                                                               
are emphatic  about the need for  the convention in order  to lay                                                               
seabed  cables  and pipelines.  UNCLOS  clarifies  the ways  that                                                               
companies can get  exclusive rights and title to  the minerals in                                                               
the seabed  and continental  shelf without  which they  can't get                                                               
investment  capital or  foreign  partners.  It clearly  specifies                                                               
that  coastal  states are  solely  responsible  for dealing  with                                                               
environmental  issues. Governments  may  engage in  international                                                               
discussion  about  environmental   provisions,  otherwise  it  is                                                               
entirely  a domestic  issue. Joining  UNCLOS will  give the  U.S.                                                               
more authority to  shape the ocean regime not only  in the Arctic                                                               
but also in areas like the  South China Sea. The convention gives                                                               
the U.S.  sovereign rights over  the minerals of  the continental                                                               
shelf and deep  seabed, and recognizes the right for  the U.S. to                                                               
determine environmental regulations through its own laws.                                                                       
4:34:06 PM                                                                                                                    
CO-CHAIR  PASKVAN  asked what  seabed  attributes  off the  north                                                               
coast of Alaska might extend up to 600 miles from shore.                                                                        
MS.  ANTRIM replied  the definition  of  "continental shelf"  now                                                               
says that natural extensions of  the continental material are not                                                               
subject to  an outer limit of  350 miles that applies  to ridges.                                                               
In 1980 all the Arctic  states agreed and specifically noted that                                                               
the  350  mile  limit  did  not apply  to  the  Chukchi  Plateau.                                                               
Research  by Larry  Mayer  that  was done  with  the Coast  Guard                                                               
indicated  that  the  continental material  and  the  continental                                                               
slope  beyond  the  material extends  considerably  further  than                                                               
previously  thought.  Photographs  of  the  seabed  indicate  gas                                                               
upwelling that  is sometimes  indicative of  hydrocarbon deposits                                                               
so  it's a  combination of  the law  opening up  for an  extended                                                               
claim and the geology justifying a claim to that distance.                                                                      
CATHY  WASSERMAN,  Executive  Director, Alaska  Municipal  League                                                               
(AML), stated  that AML  passed a  resolution urging  Congress to                                                               
ratify UNCLOS  because it would enhance  the economic development                                                               
of  Alaska  municipalities. Research  indicated  a  huge list  of                                                               
people that  have supported  the convention  over the  last 20-30                                                               
years, whereas  just a small group  has been opposed and  in fear                                                               
of  giving away  sovereignty.  She emphasized  the importance  of                                                               
taking  action, because  of the  rapid increase  in interest  and                                                               
activity in the Arctic.                                                                                                         
CO-CHAIR WAGONER  closed public testimony and  asked the pleasure                                                               
of the committee.                                                                                                               
CO-CHAIR PASKVAN  moved to  report CS for  HJR 19  from committee                                                               
with   individual  recommendations   and  attached   zero  fiscal                                                               
note(s). Without  objection, CSHJR 19(RES) moved  from the Senate                                                               
Resources Standing Committee.                                                                                                   
4:38:20 PM                                                                                                                    
At ease                                                                                                                         
                  SCR  9-TAKU RIVER TASK FORCE                                                                              
4:40:11 PM                                                                                                                    
CO-CHAIR  WAGONER  announced the  consideration  of  [SCR 9]  and                                                               
asked the  co-chair for a  motion to bring the  resolution before                                                               
the committee.                                                                                                                  
4:41:31 PM                                                                                                                    
Brief at ease.                                                                                                                  
CO-CHAIR  PASKVAN moved  to bring  SCR 9,  version A,  before the                                                               
CO-CHAIR WAGONER objected for discussion purposes.                                                                              
JESSE KIEHL, staff  to Senator Egan, sponsor of SCR  9, said that                                                               
over the last  few years, Alaskans in Southeast  have discussed a                                                               
wide variety  of ideas  about the Taku  River, and  sometimes the                                                               
conversations were  heated. He explained  that the  proposed Taku                                                               
River Task  Force would  provide a  forum for  future discussions                                                               
and recommendations for  the best management of  the resources in                                                               
that river. The  task force was designed to  represent a balanced                                                               
cross section  of user-groups and was  small enough so as  to not                                                               
be unwieldy.  Their recommendations would  be due by  December 1,                                                               
SENATOR STEDMAN said he wasn't sure what the resolution did.                                                                    
CO-CHAIR WAGONER summarized  that it establishes a  task force to                                                               
review  the requests  for restrictions  and  opinions about  what                                                               
should  be done  with the  waterway. A  proposal from  a Canadian                                                               
mining company was to run a  hovercraft up the river. He asked if                                                               
that was two years ago.                                                                                                         
MR.  KIEHL clarified  that there  wasn't a  current proposal  for                                                               
permits, but  past proposals have  raised concerns  and questions                                                               
about  activity on  the river.  The task  force would  review the                                                               
issues and  the associated science,  but the sponsor  didn't want                                                               
the resolution  to presuppose  anything. The  idea was  to gather                                                               
the  best  knowledge  and  consider  all  the  interests  of  all                                                               
resource  users  before  making  any  recommendations  to  public                                                               
agencies. Recommendations to change  regulations would go through                                                               
a public process  and recommendations to change the  law would go                                                               
before the legislature.                                                                                                         
CO-CHAIR WAGONER asked if it  was presumptuous to suggest putting                                                               
sideboards on the task force.                                                                                                   
4:46:07 PM                                                                                                                    
MR. KIEHL replied  the first thing a task force  like this should                                                               
do is to  get up to speed on the  existing rules, regulations and                                                               
SENATOR  STEDMAN  asked  for  confirmation  that  the  resolution                                                               
wouldn't preclude  a recommendation  to build  a road  or railway                                                               
into the area.                                                                                                                  
MR. KIEHL replied  this resolution does not tie the  hands of the                                                               
group  before it  starts meeting.  If the  recommendation of  the                                                               
task force was  to build a road or railway,  that's what it would                                                               
bring forward.                                                                                                                  
SENATOR STEDMAN asked  if the task force would  be precluded from                                                               
asking for an expansion of wilderness designations.                                                                             
MR.  KIEHL replied  the task  force could  theoretically come  up                                                               
with that recommendation as well.                                                                                               
SENATOR STEDMAN pointed  out that both the Taku  River valley and                                                               
the Stikine River valley have  been trade routes for thousands of                                                               
years,  and a  long-term goal  in Southeast  has been  to develop                                                               
access to the  outside. One corridor was north up  the Lynn Canal                                                               
and  others were  the Taku,  the  Stikine and  the Bradfield.  He                                                               
questioned the composition and narrow  representation of the task                                                               
MR. KIEHL explained  that the task force would  include the three                                                               
elected legislators from the Juneau  area, and their positions on                                                               
increasing access to  the area are matters of  public record. The                                                               
commissioner  of fish  and game  or  the commissioner's  designee                                                               
would also be a member. The  four public members would include 1)                                                               
one  owner of  private recreational  property in  the Taku  river                                                               
valley;  2) one  commercial fishing  permit holder  registered in                                                               
area  A; 3)  one owner  or employee  of a  business that  derives                                                               
significant  income from  transportation  to or  within the  Taku                                                               
River;  and 4)  one person  who uses  but does  not consume  Taku                                                               
River resources.                                                                                                                
MR.  KIEHL said  he  had no  reason to  believe  that radical  or                                                               
extreme recommendations would come from the task force.                                                                         
SENATOR STEVENS  asked for an  explanation of a "person  who uses                                                               
but does not consume Taku River resources."                                                                                     
MR.  KIEHL  replied the  notion  of  a non-consumptive  user  was                                                               
initially  inspired   by  the  local   fish  and   game  advisory                                                               
committee, and  was designed to  provide some breadth  of opinion                                                               
on the  issues. It would,  for example, include people  who float                                                               
rivers or take photographs.                                                                                                     
4:50:37 PM                                                                                                                    
SENATOR MCGUIRE  noted the controversy  related to  developing an                                                               
economic barging  or traffic corridor  in the area, and  asked if                                                               
consideration   was   given   to   putting   someone   from   the                                                               
transportation community on the task force.                                                                                     
MR. KIEHL  replied the task  force does have one  business member                                                               
that derives significant income  from transportation to or within                                                               
the  Taku River.  There  is an  established  business that  hauls                                                               
supplies to  the area, there's a  lodge in the area  and the area                                                               
is   serviced   by  a   number   businesses   that  provide   air                                                               
transportation  in  and out.  All  of  these businesses  have  an                                                               
interest in the future of the river.                                                                                            
SENATOR  MCGUIRE responded  that  there's  a distinction  between                                                               
those businesses and  a marine transportation company  or a barge                                                               
owner and their perspectives would  be widely divergent. She then                                                               
expressed  reservation  about delving  into  a  very local  issue                                                               
about which she knew very little.                                                                                               
4:53:48 PM                                                                                                                    
CO-CHAIR  WAGONER  agreed  that  this   was  a  local  issue  and                                                               
suggested that  the City and  Borough of Juneau should  bring the                                                               
resolution to the legislature.                                                                                                  
SENATOR STEDMAN highlighted that  there were long-standing treaty                                                               
issues with Canada  related to the Stikine corridor  and that may                                                               
or may  not be the  case with the Taku  corridor as well.  In any                                                               
event, that should be sorted out before going forward.                                                                          
MR.  KIEHL said  the Taku  River flows  across the  international                                                               
boundary so treaties  are involved, and there  was also interplay                                                               
between  the local  municipality and  various departments  within                                                               
the  state.  Those are  the  complexities  the task  force  would                                                               
address and  then bring their recommendations  to the appropriate                                                               
4:57:11 PM                                                                                                                    
KIRK  HARDCASTLE, commercial  fisherman and  owner/operator, Taku                                                               
River Reds,  stated support  for SCR 9.  He highlighted  that the                                                               
economic road map  of Taku River salmon shows  that they interact                                                               
with  all  the commercial  fish  processing  plants in  Southeast                                                               
Alaska. The  Taku River sustains  all five species of  salmon and                                                               
has active  commercial, sport and  subsistent fishing  for nearly                                                               
six months each year.                                                                                                           
4:58:58 PM                                                                                                                    
CHRIS CASEY,  professional fly fishing guide,  stated support for                                                               
SCR 9.  He described the  Taku River  as a vital  public economic                                                               
and cultural  resource. It is Southeast's  largest overall salmon                                                               
producer, and according to the  2004 McDowell report, the fishery                                                               
is worth over  $7 million annually and supports  nearly 500 jobs.                                                               
There  is   broad  support   for  increased   protection  through                                                               
NEIL  MACKINNON, secretary,  Taku  Users Group,  stated that  the                                                               
Taku River was the last  trans-boundary river not encumbered by a                                                               
park,   wilderness,  wild   and  scenic   or  other   restrictive                                                               
designation.  That  alone was  reason  for  cautious and  careful                                                               
consideration of the present and  future effect of any action. In                                                               
particular,   a  critical   habitat  designation   would  be   an                                                               
unjustifiable misallocation of Alaska's  resources that could not                                                               
provide commensurate benefit to its citizens.                                                                                   
5:03:10 PM                                                                                                                    
CHERI  RUDOLPH, president,  Taku  River Recreational  Association                                                               
(TRRA), said  it is TRRA's  position that  the need for  the Taku                                                               
River Task Force was unwarranted.  The impetus for the resolution                                                               
was to  further a continuing  agenda for special  interest groups                                                               
seeking a critical  habitat or a wild and  scenic designation for                                                               
this watershed.                                                                                                                 
CO-CHAIR WAGONER asked the current membership of the TRRA.                                                                      
MS.  RUDOLPH  replied one  year  ago  414 members  voted  against                                                               
critical habitat  for the area  and 18  in favor. She  noted that                                                               
the tally was submitted to the sponsor.                                                                                         
5:05:13 PM                                                                                                                    
NIEL ATKINSON,  representing himself,  said he  was a  Taku River                                                               
property owner who opposed SCR  9. He opined that appointments to                                                               
any task  force can be made  to ensure a certain  end result. The                                                               
resolution  doesn't direct  the task  force to  look at  historic                                                               
commercial and private  uses and future operations  that some may                                                               
feel are critical to the enjoyment of their lifestyle.                                                                          
5:06:51 PM                                                                                                                    
CARLEEN CONWAY, representing herself, said  she was a cabin owner                                                               
on the Taku River who opposed SCR  9. The idea for the task force                                                               
was  primarily brought  up by  a  special interest  group with  a                                                               
specific agenda. Furthermore, the  task force would not supersede                                                               
the ADF&G advisory committee  or the international trans-boundary                                                               
5:07:59 PM                                                                                                                    
ERROL  CHAMPION,   representing  himself,  said   the  supporting                                                               
material for the  resolution included an article  from the Juneau                                                               
Empire about wintertime  barge traffic on the Taku  River. He was                                                               
quoted  expressing  deep concern  about  the  project and  was  a                                                               
little  resentful  that it  was  included  since the  information                                                               
dated back  to 2008.  At this  point, both  the business  and the                                                               
project  were defunct,  and  there was  nothing  on record  about                                                               
future permit applications.  He said he was also  troubled by the                                                               
efforts  to  get  the  Taku River  area  designated  as  critical                                                               
habitat. He urged the committee not to pass the resolution.                                                                     
5:09:34 PM                                                                                                                    
JEV  SHELTON,  representing  himself, said  he  had  commercially                                                               
fished  the  Taku River  for  at  least  40  years and  hoped  to                                                               
continue.  He  stated  support for  proceeding  with  the  review                                                               
because the  Taku River  problems were  real. The  mining company                                                               
that proposed the hoverbarge operation  up and down the river did                                                               
fail  financially,  but  not  before   it  put  a  scare  in  the                                                               
community. Even  though it  was clear that  it would  wreak havoc                                                               
with the  fishery resource,  it appeared  to be  on the  verge of                                                               
being permitted.  He said the fishing-related  industry in Juneau                                                               
supports getting more  sensible control over the  things that can                                                               
occur to the  Taku River fishery habitat. He  emphasized that the                                                               
interest was  only in  maintaining the habitat  in the  river and                                                               
not  sacrificing   a  significant  part  of   the  non-government                                                               
employment in  the Juneau  community. He  said there  was already                                                               
another applicant  for that  mine and it  was a  misconception to                                                               
think  that  it  wasn't  the  right  time  to  set  up  a  proper                                                               
procedure, because the proposal will come up again.                                                                             
5:12:09 PM                                                                                                                    
RON SOMERVILLE,  Territorial Sportsmen  Inc., cautioned  that the                                                               
environmental  community  had  for  some  time  been  focused  on                                                               
establishing  an  international  body  to  govern  trans-boundary                                                               
rivers like  the Stikine and Taku.  He said he was  also somewhat                                                               
disappointed  that  the  task  force  did  not  include  a  sport                                                               
fisherman. He pointed  out that the resolution  was about barging                                                               
down  the Taku  River and  possibly impacting  fisheries, but  it                                                               
covered game  as well. He  recommended removing any  reference to                                                               
game  and  appointing  more  people   to  the  task  force,  with                                                               
particular  consideration  given  to  the  Territorial  Sportsmen                                                               
since  it  was  the  largest conservation  group  in  Juneau.  He                                                               
further suggested that if the report to the legislature was                                                                     
majority based that there should also be an opportunity for a                                                                   
minority report so that legislators could get the whole picture.                                                                
CO-CHAIR WAGONER announced he would hold SCR 9 in the Senate                                                                    
Resources Standing Committee.                                                                                                   
5:15:16 PM                                                                                                                    
There being no further business to come before the committee,                                                                   
CO-CHAIR WAGONER adjourned the Senate Resources Standing                                                                        
Committee meeting at 5:15 p.m.                                                                                                  

Document Name Date/Time Subjects
CSHJR 19 sponsor statement.pdf SRES 3/28/2011 3:30:00 PM
HJR 19
HJR 19 - EDT and RES Changes (for Senate Resources).pdf SRES 3/28/2011 3:30:00 PM
HJR 19
HJR 19 - Leg Research Report (revises 3.11.11).pdf SRES 3/28/2011 3:30:00 PM
HJR 19
HJR 19 - Senate Resources Hearing Request.pdf SRES 3/28/2011 3:30:00 PM
HJR 19
HJR 19 - Zero Fiscal Note.pdf SRES 3/28/2011 3:30:00 PM
HJR 19
HJR019C.PDF SRES 3/28/2011 3:30:00 PM
HJR 19
SCR 9_Sponsor Statement.pdf SRES 3/28/2011 3:30:00 PM
SCR 9_Version A.pdf SRES 3/28/2011 3:30:00 PM
SCR 9_Supporting Documents_Juneau AC Letter.pdf SRES 3/28/2011 3:30:00 PM
SCR 9_Supporting Documents_Map.pdf SRES 3/28/2011 3:30:00 PM
SCR 9_Supporting Documents_McDowell Taku Report ExSumm.pdf SRES 3/28/2011 3:30:00 PM
SCR 9_Supporting Documents_News Articles.pdf SRES 3/28/2011 3:30:00 PM