Legislature(1997 - 1998)
02/20/1998 03:40 PM Senate RES
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SENATE RESOURCES COMMITTEE
February 20, 1998
3:40 P.M.
MEMBERS PRESENT
Senator Rick Halford, Chairman
Senator Lyda Green, Vice Chairman
Senator Loren Leman
Senator Bert Sharp
Senator John Torgerson
MEMBERS ABSENT
Senator Robin Taylor
Senator Georgianna Lincoln
COMMITTEE CALENDAR
SENATE BILL NO. 236
"An Act extending the termination date of the Citizens' Advisory
Commission on Federal Areas in Alaska; and providing for an
effective date."
- SCHEDULED BUT NOT HEARD
SENATE BILL NO. 286
"An Act relating to actions to quiet title to, eject a person from,
or recover real property or the possession of it, and to
acquisition of real property by adverse possession; and providing
for an effective date."
- HEARD AND HELD
SENATE BILL NO. 256
"An Act relating to a temporary reduction of royalty on oil and gas
produced for sale from fields within the Cook Inlet sedimentary
basin where production is commenced in fields that have been
discovered and undeveloped or that have been shut in."
- HEARD AND HELD
PREVIOUS SENATE COMMITTEE ACTION
SB 236 - No previous action to record.
SB 286 - No previous action to record.
SB 256 - No previous action to record.
WITNESS REGISTER
Mr. Dave Gray, Staff
Senator Jerry Mackie
State Capitol Bldg.
Juneau, AK 99811-1182
POSITION STATEMENT: Supported SB 286.
Mr. Richard Harris
Sealaska Corporation
One Sealaska Plaza, Ste. 400
Juneau, AK 99801
POSITION STATEMENT: Supported SB 286.
Mr. Steve Sorenson, Council
Sealaska Corporation
One Sealaska Plaza, Ste 400
Juneau, AK 99801
POSITION STATEMENT: Commented on SB 286.
Mr. Charles McKee
P.O. Box 243053
Anchorage, AK 99504
POSITION STATEMENT: Opposed SB 286.
Senator Drue Pearce
State Capitol Bldg.
Juneau, AK 99811-1182
POSITION STATEMENT: Sponsor of SB 256.
Mr. Gary Carlson, Vice President
Forcenergy
POSITION STATEMENT: Supported SB 256.
Mr. Kevin Tabler, Manager
Land and Government Affairs
Unocal
P.O. Box 196247
Anchorage, AK 99519
POSITION STATEMENT: Supported SB 256.
Mr. John Miesse
Marathon Oil
P.O. Box 196168
Anchorage, AK 99519
POSITION STATEMENT: Supported SB 256.
ACTION NARRATIVE
TAPE 98-12, SIDE A
Number 001
SB 236 - CITIZENS ADVISORY COM ON FED AREAS IN AK
CHAIRMAN HALFORD called the Senate Resources Committee meeting to
order at 3:40 p.m. and said that the sponsor for SB 236 was not
available to testify and the bill would be rescheduled.
SB 286 - ADVERSE POSSESSION
CHAIRMAN HALFORD announced SB 286 to be up for consideration.
MR. DAVE GRAY, Staff to Senator Mackie, sponsor, said SB 286 was
introduced to bring attention to the State's current laws governing
adverse possession of private property and its suitability to land
ownership and to modern advances in the location, description, and
recording of private lands. The legislation addresses two
conditions of adverse possession. The first is the "squatter"
situation where a person knowingly and with intent occupies another
person's property. After ten years of use, the occupant can claim
ownership by adverse possession under current law. In addition,
there is no compensation to the real owner for his or her loss.
In the second instance, the person's occupancy of the property is
under a good faith belief that they have clear title or other
documentation establishing their ownership. This instance also
includes the adjacent property owner who mistakenly locates on
neighboring land. In each situation, the property can be claimed
after seven years of adverse possession.
Much of the private land in the State is now located in remote,
wilderness areas of the State because of the ANCSA settlements and
other properties associated with historical mining activities.
Because of their remoteness, these properties are more subject to
inattention by their owners and therefore susceptible to adverse
possession. SB 286 proposes to eliminate any adverse possession
claim by a person who knowingly and intentionally occupies land
they do not own. When the occupancy is inadvertent, the
legislation increases the standards for adverse possession. In the
latter case, the original owner must be compensated.
MR. RICHARD HARRIS, Sealaska Corporation, said they are the largest
private land owner in Southeast Alaska. He said the adverse
possession doctrine was born in the middle ages and has little
applicability to the 20th Century. State and federal lands cannot
be divested of title through adverse possession. Neither can
native corporation lands that are in an undeveloped state.
However, all private lands, including ANCSA lands, if they are in
a developed state, are subject to adverse possession. Sealaska has
had some direct adverse possession experience with its non ANCSA
lands and is aware of other private land owners with similar
problems.
The "squatter" statute requires the squatter to possess the
property for 10 years and, thereafter, the actual owner of the
property is barred from either bringing any action against that
individual to throw them off the property or to seek any
compensation. You effectively lose title to your property. The
other type is the "color of title" which is an honest belief that
the possessor really owns the land.
The State Supreme Court has stated the doctrine serves a useful
public purpose. If the owner leaves land idle, it should be put to
some beneficial use and if it is done by a squatter, so be it. The
court also justifies adverse possession because it keeps stale
cases out of court. Neither of these justifications keeps cases
out of court, Mr. Harris said.
SB 286 abolishes the squatters statute, though it reserves any
rights a person has acquired under the law before it was abolished.
It also limits the availability of this doctrine to two narrow
circumstances where there are arguable good policy justifications
for allowing adverse possession. There is a good public policy
qualification for a situation where the property owner in good
faith occupies the property beyond the boundaries. After 20 years
of open adverse possession the possessor could acquire quiet title
to the property. It has to be done in a good faith manner and the
possessor must prove entitlement and pay the land owner. The
payment makes it equitable.
It is very difficult to police lands when they are in large remote
areas to assure yourself that no squatter has taken residence.
They have had experience that even though the squatter has taken
residence, the difficulty of moving people off a property is also
very frustrating and quite time consuming. The Attorney General's
Office indicates that under some circumstances this might create
new litigation or may place additional burdens on the court, but
they agree that this is speculative and there is no evidence to
support this.
SENATOR TORGERSON asked how this would affect rights-of-way or
roads that are built on other properties that have been there for
a number of years.
MR. SORENSON, Council for Sealaska, answered that any interest that
has been there for over 10 years would not be affected by this
legislation. Up until 10 years, however, the Supreme Court rules
that it is trespassing.
SENATOR TORGERSON asked if they had squatters on their land.
MR. SORENSON answered yes, one in Cordova which has been taken care
of. They tried to sell land that people were squatting on to the
city of Cordova and finally, in order to clear the title for
transfer of title, they had to buy someone off. Another
circumstance happened near Wasilla with a squatter. They see this
occurring in various locations.
SENATOR TORGERSON asked if they were grandfathering anyone in under
this legislation.
Number 230
CHAIRMAN HALFORD said the answer was no unless there was a
perfected right.
SENATOR TORGERSON asked if there were any notice requirements.
MR. SORENSON answered no. He added if a land owner discovers that
someone is using their property, there is the right to give them a
notice to quit under the statute, and then you can bring an action
for unlawful detainer or ejectment. This is a straightforward
procedure. From the possessor's standpoint, their actions have to
be fairly open and notorious.
SENATOR SHARP asked if the squatters were on the land when it was
acquired in the instances in Cordova and Wasilla.
MR. HARRIS answered in Cordova the property was used frequently by
the summer people coming in and processing fish in a camp. Out of
that there were people beginning to establish year-round occupancy,
so they were able to claim they were in possession of that
property. They went through several efforts to evict which was
very awkward and difficult. They ended up buying one person off
before they could trade the land to the city. He said the 10 years
doesn't run against any one particular owner; it's a continuous 10-
year period.
CHAIRMAN HALFORD said that action has to have been taken before 10
years; you don't actually have to get them off.
MR. HARRIS agreed that was correct.
SENATOR TORGERSON asked what the impact would be on the University,
the Railroad, and municipal governments.
Number 300
MR. HARRIS replied that it wouldn't affect any land except private
lands. There is a specific statute that says the title to
University land cannot be gained through adverse possession and
another specific statute that says municipal lands are not subject
to adverse possession.
CHAIRMAN HALFORD said he didn't know of any western state that has
eliminated adverse possession. There are differences in the number
of years it requires. He thought it was legitimate for people who
own land to be able to get people off the land they own, but the
adverse possession rule came from one of the basic tenets of
ownership which is control.
MR. HARRIS said he was right that Alaska would be the first state
to take this kind of action.
CHAIRMAN HALFORD said he was interested in looking at ways to make
this work, but the laundry list on page 2 was so complete that he
couldn't think of a single thing to add to it to make sure it
didn't happen.
MR. CHARLES MCKEE said he wished they would have noted that this is
common law they are discussing and opposed SB 286.
CHAIRMAN HALFORD noted that although this is based on common law,
there are two Alaska statutes that deal with adverse possession.
He said he would talk to the sponsor to see if there was something
that could help with regard to enforcement actions that would be a
little bit less extensive than the list on page 2.
SB 256 - REDUCE ROYALTY ON COOK INLET OIL & GAS
CHAIRMAN HALFORD announced SB 256 to be up for consideration.
Number 440
SENATOR PEARCE, sponsor, said it offers a royalty holiday specific
to Cook Inlet to help make sure that the oil and gas industry
remains strong and is a response to concerns put forward by our
largest gas distributer, Instar, about long term supplies of gas.
Her bill doesn't deal with exploration; it deals with production of
fields that have already been discovered, but haven't been brought
on line for various reasons.
The Kenai Field, the area's largest and oldest producing gas field,
is more than 88 percent depleted. This could lead to gas shortages
which would lead to rapid price increases for residential and
commercial consumers. This would threaten the viability of
Unocal's fertilizer plant and the Phillips/Marathon LNG export
facilities at Nikiski, both of which provide substantial employment
opportunities and vital revenues for South central Alaska
communities. She also stated that the bill applies to oil as well
as gas.
Oil and gas produced from undeveloped or shut-in fields brought
into production before January 1, 2004 would pay a reduced royalty
of five percent instead of the 12 + specified in the lease for a
period of 10 years following the date on which production began.
SB 256 isn't intended as a one way street. In order to qualify for
a reduced royalty, the lessees have to act immediately to delineate
the fields and bring them into production by 2003 - a fairly fast
track in the oil and gas industry. A preliminary review shows
eligible fields will include Falls Creek (gas), Nicolai Creek
(gas), North Fork (gas), Redoubt Shoal (oil), Starichkof (oil), and
West Forelands (gas). The goals of the bill are simple - to
develop new sources of natural gas and oil to offset declining
production in the Inlet. This will mean more jobs for Anchorage
and Kenai Peninsula area residents. Having production in the near
future rather than the far out future will help keep productions at
a level that will insure that the industry stays on track and will
continue to support the commercial entities that have built up
around the industry.
In the fiscal note, the Department says that they can't estimate
the numbers, but they have an analysis. One of the points they
have is why can't these fields just apply for a royalty reduction
under HB 207. She said it wasn't their intent, but they may have
built HB 207 in a way that it didn't really work. It set out an
opportunity for closed door negotiations between any administration
and any company and could have led to decisions on whatever
happened to be politically correct or in vogue at the time.
SB 256 leads to no closed door negotiations. It's very clear. If
you are eligible under some very specific rules, you get a straight
royalty holiday of a certain amount for a certain period of time.
She noted that there was no relief for the Badami Field. One of
the problems with HB 207 is that until you can drill more
delineation wells, you can't give the Department enough information
to give you the HB 207 relief.
SENATOR PEARCE noted that the top of page 2 in the letter from Mr.
Boyd, the Department brings up a particular point about a Redoubt
Unit agreement with Forcenergy. The Department says that at no
time during negotiations with Forcenergy was the issue of royalty
reduction raised. She understands that Forcenergy did raise the
question with Patrick Coughlin of the Division of Oil and Gas and
there is record of that.
Number 530
SENATOR SHARP commented isn't it true that five percent of
something is better than 0 percent of nothing.
SENATOR PEARCE responded that this is a case where we know there
are fields, they haven't been brought on line, and they are small.
If some people are uncomfortable in not seeing an upside, you could
cap the size and number of barrels you want to give a royalty
holiday to. She said we are not betting on exploration; we are
talking about accumulations we know about, but aren't economic at
present.
CHAIRMAN HALFORD said sometimes production has more to do with what
the market can absorb at that time than it does with the economic
viability of a particular source of whatever that product is. He
asked if that was a factor.
SENATOR PEARCE answered that there was no real way to know that.
Waiting for the market is great, but in this particular case, we're
waiting for the market and while we wait, we may see South central
energy prices go up dramatically. She wanted to act before that
happens. She didn't know if there was an answer to his question
and noted that the answer might be different for gas and oil.
SENATOR TORGERSON asked if this royalty relief goes deeper than
what is in HB 207.
SENATOR PEARCE said she didn't remember exactly. It wasn't in the
same terms. There were three categories: exploration, already
producing fields, and shut-ins. She is not sure if a field that
was there, but had never been produced fit in anywhere. SB 256 is
more definitive. She intends to ask the Department to figure the
relief based on all six fields coming in.
SENATOR TORGERSON asked what happened to Unocal's request.
MR. KEN BOYD, Director, Division of Oil and Gas, said he is not
prepared to take a position on the bill. It doesn't have a
provision to account for change in economic conditions and he
disagreed with her opinion on HB 207 with Unocal. They worked hard
and long with them and amicably, but HB 207 sets a pretty high
hurdle. If Unocal gave up, they never told him.
He said it isn't clear to him which fields would qualify for the
royalty reduction. The six listed probably would. Others could be
included, but that might need further definition of what
undeveloped is. In the recent announcement by Phillips at the
North Cook Inlet, it's arguable how a holiday reduction would work
since there are shut-in wells in that field. It might also apply
to the Pioneer Unit (Unocal).
SENATOR TORGERSON asked if he had given any royalty relief under HB
207.
MR. BOYD answered no and the only application they have received is
from Unocal which sits in limbo at Unocal.
TAPE 98-12, SIDE B
SENATOR TORGERSON asked if HB 207 was all smoke and mirrors for
Badami.
MR. BOYD replied that he had no comment on that. The bill was
debated a long time in the legislature. If you meet the
requirements of the bill, relief can be granted.
SENATOR TORGERSON said he would like to call Unocal and get the
other side of the story.
MR. BOYD responded that he was sitting right across from someone at
Unocal now.
SENATOR PEARCE clarified that the six fields she is talking about
came from Mr. Richard Kornbrath, DNR, who did an analysis of
historical oil and gas lease sale and exploration data for Alaska
in 1995. They are the six fields the Department, itself, called
undeveloped. There are other abbreviations including producing,
abandoned, shut-in, and discovered prior to competitive leasing.
She took the undeveloped list and the ones that fit into the time-
frame.
MR. BOYD responded that the words in that pamphlet are not a matter
of law; it's a matter of common usage. It's merely descriptive
terminology.
SENATOR PEARCE said she didn't mind putting definitions in the
bill.
CHAIRMAN HALFORD asked Mr. Boyd to carry the fiscal note out to
some other conclusion than the example of one project.
MR. GARY CARLSON, Vice President, Forcenergy, said they were new to
Alaska about 15 months ago. They came to look for opportunities to
develop assets that might have been left behind by larger
companies. They are very active and are a major lease holder in
the State now. They have made some acquisitions and committed $180
million and are real investors in Alaska. All that $180 million is
in Cook Inlet. They have 22 employees here; 18 were residents when
they came to work for them; three of them had lived here before and
one they recruited out-of-State. They are going to grow their
company in Alaska. They have made liberal use of local contractors
and consultants. He supported SB 256 saying he has seen these
types of incentives work well in other places in the world. It
attracts capital investment in a timely fashion. He thought we
have less than five years to make investments to take advantage of
an opportunity to develop fields that might have been left behind
by the majors. There will be activity soon, at least for them, if
this bill goes through. SB 256 will clarify the gas supply
concerns. Any additional infrastructure that is developed as a
result of trying to develop these shut-in fields will support other
fields.
Number 498
SENATOR TORGERSON asked if he would oppose some identification of
how big a field could go up to before the royalty relief would end.
MR. CARLSON answered setting a cap on the volume of barrels or
billion cubic feet (bcf) of gas would still fit the spirit of the
bill. Redoubt Shoal, for instance, would take a certain number of
barrels to make an attractive return - even with the royalty
holiday. If the volume was selected thoughtfully, it would work
and the State would benefit, if it is a huge field.
SENATOR TORGERSON asked what the volume would be or was he
suggesting a by well figure.
MR. CARLSON answered from a planning standpoint the total volume
would probably be a good cap. At current prices that would be
between 40 million and 50 million barrels, even the royalty, to
have an attractive investment. He was sure they could come to a
comparable volume of bcf of gas.
CHAIRMAN HALFORD said it seems the capacity for State support of a
field has peaked; and on the trailing end, Forcenergy would get the
royalty relief to avoid shutting it in later.
MR. CARLSON said obviously you would want to keep the fields on as
long as possible.
CHAIRMAN HALFORD asked if there were any other costs to them and
income to the State, other than royalty, that is more profit
sensitive. Royalty is essentially a gross fee on amount.
MR. CARLSON said he would have to think about that a little bit,
but when you look at the burdens you put on a project, royalty
comes off the top. As a matter of course, he's encouraged
Forcenergy to make an up-front investment to buy out overriding
royalties, because the ongoing burden is what takes you out of
business when the oil prices are tough. Another area that would
apply similar to that would be any burdens they would have in
moving oil around, like tariffs, which is an issue in Cook Inlet
where they pay a couple dollars per barrel just to move it from one
part of the pipeline system to another, then put it on a boat to
move it across the Inlet, which is another dollar.
CHAIRMAN HALFORD said he was surprised he didn't mention income
tax.
MR. CARLSON responded that they hadn't reached that point, yet.
Number 400
MR. KEVIN TABLER, Unocal, supported legislation which he said
creates incentives for the exploration and development of the
State's natural resources. Cook Inlet is Unocal's primary area of
focus and they are encouraged that responsible incentives are being
discussed which will increase activity and possibly increase the
development of several known shut-in fields, some of which were
discovered over 30 years ago. Today's declining Cook Inlet reserve
base has created a need for discovery of new reserves and the
development of known accumulations. This will require expansion
and utilization of the existing infrastructure in taking advantage
of economies of scale. The time is right to access the existing
accumulations, but access alone will not make these reserves
economically viable. The Cook Inlet, with its mature and declining
fields low margin property, high operating costs and regulatory
uncertainty, creates a challenging environment in which to stay
profitable. Unocal's investments are continually threatened by
global competition for investment dollars.
Product price plays a key role in field development, but in
undeveloped or shut-in fields which are marginally economic,
product prices and other uncontrollable conditions limit
development opportunities unless adequately offset by some other
factor.
A clear, certain and easily administered way to reduce start-up
costs of undeveloped fields and improve their overall economic
viability is to reduce the royalty burden. This factor, alone, is
controllable, creates certainty, and reduces risk.
SENATOR TORGERSON asked him to update their application for HB 207.
MR. TABLER answered that although he was not directly involved in
the negotiation of it, he is familiar with what took place. They
concluded that the amount of relief they would have qualified for
was not worth the time and effort they had spent to date. In fact,
it wouldn't even pay for the cost of going through the technical
analysis that was required. He said they hadn't pulled their
application, but they just haven't pursued it. He said that
language in HB 207 for marginal fields was subjective and requires
negotiation and the determination of what is in the State's best
interest. Prior to HB 207, the Commissioner only had the authority
to adjust royalties; HB 207 sought to provide further adjustment
for economic relief. It's a difficult position for the
Commissioner to be in, because he has a mandate to protect the
State's interest. This is in direct conflict at times with the
analysis that the company goes through in making an investment
decision. They concluded that as long as there was a positive net
present value on any of the projects they proposed, the State was
not inclined to grant royalty relief. There are very few companies
engaged in fully designing and analyzing money losing ventures. As
a result, royalty relief is likely to be granted to those companies
that have spent considerable resources on unattractive projects to
show the clear and convincing evidence.
MR. JOHN MIESSE, Marathon Oil, supported SB 256 and said in the
long term it would have positive economic impact on the State of
Alaska and local communities. However, he thought it would have a
more immediate impact on undeveloped or shut-in oil fields because
of the readily available market for this product. The ultimate
incentive for adding reserve capacity is the availability of ready
and stable markets. Such a market is available for new oil
reserves in the Cook Inlet area, but the same cannot be said for
natural gas. New markets for uncommitted natural gas reserves are
not available for the next several years making it difficult to
economically justify near-term drilling expenditures. Although
this bill provides some economic benefit to the industry, it won't
be enough by itself to stimulate significant activity for natural
gas development in the near future.
It's his understanding that the intent of this legislation is to
provide the temporary relief to fields that have been undeveloped
and shut-in and they would like to know their definition of
undeveloped. Specifically, they would like to know if a field that
has produced periodically over the last two years, but requires
additional drilling to fully develop the field, would be eligible.
Also, they would like to clarify whether royalty relief would apply
to reentry of an existing well or a new well needed to recover
undeveloped reserves.
MR. MIESSE said that many of the oil and gas producing states
enacted similar incentives for oil and gas development in the early
1990s. These states have found the programs to be beneficial to
all stake holders involved and have maintained those programs.
CHAIRMAN HALFORD thanked everyone for their comments and said they
would bring this bill up again. He adjourned the meeting at 5:00
p.m.
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