HOUSE SPECIAL COMMITTEE ON OIL & GAS January 26, 1993 10:00 a.m. MEMBERS PRESENT Representative Joe Green, Chairman Representative Pete Kott, Vice-Chairman Representative Harley Olberg Representative Gary Davis Representative Jerry Sanders Representative Joe Sitton Representative Jerry Mackie MEMBERS ABSENT None COMMITTEE CALENDAR Organizational Meeting WITNESS REGISTER Chip Thoma Two Marine Way Juneau, Alaska 99801 POSITION STATEMENT: Spoke on issues related to the gas and oil industry ACTION NARRATIVE TAPE 93-1, Side A Number 000 CHAIRMAN JOE GREEN called the meeting to order at 10:03 a.m., and noted all members were present. He then asked members to introduce themselves. Number 011 REPRESENTATIVE PETE KOTT of Eagle River, District 24, advised of his military background and his interest in oil and gas. He believed opportunities for the industry could be promoted, since the industry created a very nice economic environment for the state. Number 017 REPRESENTATIVE HARLEY OLBERG a farmer and former banker from Delta Junction, said he was interested in learning all he could about oil and gas. He represented Valdez. Number 020 REPRESENTATIVE JERRY MACKIE from Craig represented Southeast, a district comprised of 34 communities from Metlakatla to Yakutat. Although his district did not have any oil exploration development, he said it did not take a rocket scientist to figure out that 85 percent of the state's revenues came from oil and, therefore, the state needed to create new opportunities, some incentives, and the proper environment for the oil industry to flourish and continue to want to invest in Alaska and not in other regions of the world. His interest was pro-development, he added. Number 027 REPRESENTATIVE JOE SITTON from District 31 in Fairbanks, was vitally interested in the oil and gas industry. He recognized the contributions of the industry to the financing of state government operations. He was interested in having things be as reasonable as possible for people who do business in the state, while at the same time protecting the interest of the people in the state as well as the resources. REPRESENTATIVE SITTON looked forward to working on the committee and assured his cooperation whenever possible. Number 036 REPRESENTATIVE JERRY SANDERS from mid-town Anchorage, District 19, was interested in petroleum because of the financial benefit to the state, and encouraged exploration with responsible development. He worked in the oil field as a roughneck and, therefore, knew a lot about it. REPRESENTATIVE SANDERS stated he was there to be part of the group and "to try to move things along for the economic development portion of it." Number 044 REPRESENTATIVE GARY DAVIS from District 8, which included Soldotna to Seward, pointed out his district also included Swanson River, which was the first commercial find of oil and gas in the state, discovered in 1957. He advised that he lived in the area for 30 years, and had been mayor of Soldotna, which was typically a bedroom community of people employed in the oil and gas industry: A bedroom community for North Slope workers and offshore platforms in Cook Inlet, as well as Swanson River. He and his constituents had a deep vested interest in oil and gas, he concluded. Number 053 CHAIRMAN GREEN of South Anchorage, stated that as a petroleum engineer with 37 years in the oil industry he had some insight on some of those matters. He was particularly delighted that the committee had such a cross-section of people that represented such a wide geographical area. CHAIRMAN GREEN was looking for some way to encourage further development in the state in an environmentally sound manner. He hoped the committee would become knowledgeable in oil and gas matters, and thought they needed to stay receptive to new concepts. CHAIRMAN GREEN believed it was incumbent upon the committee to look at other ways and new concepts that they could actually encourage. He noted the loss of a tremendous number of oil and gas companies from the state over the last few years and thought it incumbent upon the committee to come up with methods, ways, ideas, and concepts that could turn that around and make Alaska an exciting place for companies to invest their money. CHAIRMAN GREEN concluded that recent discoveries had been a help, but thought the basic climate of government was going to be important. Number 078 REPRESENTATIVE OLBERG believed the single most important thing that the committee and the legislature could do was improve the regulatory climate, which he felt was driving people out of the state and inhibiting people from coming to the state. The known area of petroleum development were now eastern Soviet Union, China, and Indonesia, and there just wasn't the climate in Alaska today to encourage people to invest here, he said. This was something that really needed to be addressed, he added. Number 086 CHAIRMAN GREEN concurred. REPRESENTATIVE MACKIE mentioned his strong interest in the Arctic National Wildlife Refuge (ANWR). With the current administration it was really unclear as to what Alaska's direction should be in terms of lobbying efforts, he said. REPRESENTATIVE MACKIE advised of his experience in lobbying for ANWR over the last few years, and his willingness to actively continue such lobbying efforts. He and Governor Sheffield met with President-Elect Clinton when he was a candidate and discussed this issue with him, and also addressed the convention on the issue of ANWR, he added. REPRESENTATIVE MACKIE hoped the committee would take a more active interest in ANWR. He saw ANWR as being very vital to Alaska's future, and believed that any escalation of problems in the middle east or any kind of disasters in the United States or oil shortages would show the administration the need for ANWR to provide for our country. REPRESENTATIVE MACKIE hoped the committee could work with the Senate Oil and Gas Committee. He stated the Governor was going to need funds to follow through with whatever his strategy might be. He thought it important not to try to shove ANWR down anyone's throat, and that timing would be a real necessary thing to monitor. REPRESENTATIVE MACKIE thought Governor Sheffield would continue to be involved, as well as Representative Mike Navarre and others. CHAIRMAN GREEN shared Representative Mackie's concerns. He said, "If Yeltsin can't pull off this westernizing of Russia we may have yet to see them again, if not as an enemy, as a not very friendly ally and we know the problems we had nationalizing the middle east so China and these other areas we are looking at I think we definitely need to focus and bring the industry back to focus within the Continental United States." Number 135 REPRESENTATIVE SITTON referenced a recent telecast in the Lower 48 which indicated how many hundreds of oil field production companies had gone out of business. All the smaller companies were in a lot of trouble in the lower 48, not just Alaska, he said. REPRESENTATIVE SITTON was intrigued that a decision had been made among some oil company executives to concentrate on overseas rather than domestic production, for a variety of reasons. He hoped one of the reasons for that was not to support substandard pay in third world countries because he certainly did not want that in Alaska either. Number 148 REPRESENTATIVE OLBERG thought that Governor Sheffield had publicly remarked that this was a good time to back off on ANWR. He suggested an approach to consider using was to do an inventory of ANWR rather than full scale development. He felt the minimum necessary exploratory drilling should be done to know what was there. REPRESENTATIVE OLBERG believed full scale development of ANWR was a dead issue for a few years, but could be approached on a limited experimental drilling basis. CHAIRMAN GREEN believed knowing what was in ANWR was of major importance in deciding what to do with it, and in order to make sound policy. REPRESENTATIVE SITTON was intrigued by Representative Olberg's comments, and wondered how an inventory of ANWR would be accomplished and how costly that might be. REPRESENTATIVE OLBERG had no idea how to go about getting an inventory of ANWR done. Number 174 CHAIRMAN GREEN responded that an inventory of ANWR would be very expensive since any kind of drilling in remote areas was very expensive. He then expounded on the term "cost hold," which was a concept of drilling off structure purposely so that the drilling would relate the geology. Then, it was up to the players to determine whether or not the geology would be conducive on structure, he said. CHAIRMAN GREEN thought a lot of environmentalists were concerned that there would not be this interim part and that once ANWR was developed there would be significant reserves and a floodgate of development. He added that once found, even in the best of situations, short of maybe a national emergency, it would be a significant number of years before oil from ANWR could be produced on the scale of that in Valdez. CHAIRMAN GREEN distributed Petroleum Handbooks which contained information specifically applicable to the Arctic Environment. He encouraged members to review the Petroleum Handbook to get an idea of what went on in the oil industry. Number 217 REPRESENTATIVE SANDERS agreed with Representative Olberg with regard to doing an inventory of ANWR, but was concerned that if appreciable amounts of oil were found some federal complacency and complacency in other states might be created. CHAIRMAN GREEN pointed out the industry historically had a boom/bust situation. REPRESENTATIVE DAVIS said they were all looking for additional revenue and business in the state, and encouraged members to look into the results of the Cook Inlet Oil and Gas Lease Sale and the amount of interest that sale had generated, as an indicator of what the industry was doing right now. Number 261 CHAIRMAN GREEN stated the company had been very successful with Cook Inlet, as well as Toodlum Well off ANWR, and two wells in the Colville Delta. This showed that diligence was worthwhile and, therefore, others should be encouraged to do the same thing, he believed. CHAIRMAN GREEN disclosed a call for nominations, a method used by the Department of Natural Resources (DNR) on lease sales, was upcoming. He announced the committee would hear an overview on Thursday, January 28, 1993, from both the DNR's Division of Oil and Gas and the Alaska Oil and Gas Conservation Commission. CHAIRMAN GREEN pointed out the committee would be the first to hold a confirmation hearing on Glenn Olds, the candidate for Commissioner of DNR. Number 323 REPRESENTATIVE SITTON wondered whether the committee would be given background information on commission appointees ahead of time so the committee could determine the necessary questions. CHAIRMAN GREEN replied in the affirmative. He disclosed the committee had received a package of information along with the request for confirmation. REPRESENTATIVE SITTON stated that though he respected the Governor's judgment, it was his intent to look very thoroughly into the background of commission appointees. CHAIRMAN GREEN agreed it was the committee's job to "get the best man for the job." Number 336 CHAIRMAN GREEN advised that HB 80 which placed a limit on the amount of acreage a certain entity might hold, would be heard by the committee after receipt of a similar bill by the governor. CHAIRMAN GREEN talked about a bill currently in the House State Affairs Committee that, in effect, charged a nickel a barrel to build a fund, the 470 Fund, that would be useable in case of an oil spill disaster. He was concerned that this bill had a tendency to want to have more things funded from that fund. His personal view was that if the fund was justified to begin with then it should be accomplished and not be continually syphoned off. Number 365 REPRESENTATIVE OLBERG thought he had a major investigation going with regard to where all the money in the 470 Fund went, but found out that the Department of Environmental Conservation (DEC), published a book that said $47 million had been skimmed off and what was done with it. If necessary, he hoped to submit legislation to cap that fund at $50 million and stop it from being a "DEC slush fund." Number 373 CHAIRMAN GREEN believed the committee would be very helpful in getting a cap on the 470 Fund. He stated the book mentioned by Representative Olberg was an annual report published by the DEC. He surmised the fund "runs $27 to $30 million a year of income at a nickel a barrel and you think in a year and a half it would be full, but it has never got there. In fact it is dangerously low, it is less than $20 million." He added, "something bad was going on." Number 387 CHIP THOMA, an active participant in the legislative process for about 22 years, gave an account of a McNeil Lehrer show in which Charles DiBona of the American Petroleum Institute, gave what he perceived as a very inappropriate view of the way the industry was going to take on the new administration. MR. THOMA believed it was very evident from the comments from Secretary Benson of the Treasury and the comments that have been made by the new Clinton administration that there would be an energy tax. He believed further that Mr. DiBona's reticence to even entertain the idea of a tax, in fact his unwillingness to consider such a tax, abounded ill for the industry. MR. THOMA surmised the administration had recognized that our industries, homes, cars, and our whole way of using petroleum based energy was totally inefficient and that we wasted 50% of the energy we burned. Being in the insulation business, he noted almost every house in the United States was not properly insulated. MR. THOMA stated that as long as the petroleum industry continued their current way of making money and promoting inefficiency things were not going to work and there would be an energy tax on production, marketing, and consumers, which would raise $150 billion a year to bring down the deficit and be placed in environmental and conservation programs throughout the country. MR. THOMA added that a nickel a barrel was an example of the type of tax that would be placed on the industry. He agreed some of those monies had perhaps "gone out the door a little bit too fast," but urged the committee to consider the trend in the national administration. Number 434 CHAIRMAN GREEN invited those in attendance to the next committee meeting on Thursday, January 28, 1993. ADJOURNMENT CHAIRMAN GREEN then adjourned the meeting at 10:40 a.m.