SENATE RESOURCES COMMITTEE February 7, 1996 3:43 P.M. MEMBERS PRESENT Senator Loren Leman, Chairman Senator Drue Pearce, Vice Chairman Senator Rick Halford Senator Georgianna Lincoln Senator Lyman Hoffman MEMBERS ABSENT Senator Steve Frank Senator Robin Taylor COMMITTEE CALENDAR SENATE BILL NO. 114 "An Act relating to high cost marginal oil wells." PREVIOUS SENATE COMMITTEE ACTION SB 114 - See Resources minutes dated 3/8/95, 3/17/95, 4/7/95, and 5/10/95. WITNESS REGISTER Ken Boyd, Director Division of Oil and Gas Department of Natural Resources 3601 C Street, Ste 1380 Anchorage, AK 99503-5948 POSITION STATEMENT: Opposed SB 114. ACTION NARRATIVE TAPE 96-12, SIDE A Number 001 SRES 2796 SB 114 HIGH COST MARGINAL OIL WELLS  CHAIRMAN LEMAN called the Senate Resources Committee meeting to order at 3:43 p.m. and announced SB 114 to be up for consideration. He highlighted the differences in the proposed CS. In the previous version the certificates (for a high cost marginal well) were good for one year and in this version they are good for five years. In the previous version API gravity was less than 15 degrees and in this version it's less than 20 degrees so it applies to a broader range of oil. The third difference is that previously credit could be applied to suspend obligation to pay royalty on the first 100 barrels of daily production per well and this version says the exemption could apply to the first 300 barrels of daily production. The credit still cannot be combined with any other program and in this version drilling must take place on or after July 1, 1996, and before July 1, 2006. Number 54 KEN BOYD, Director, Division of Oil and Gas, said he felt a little odd about commenting on a bill that is under a statutory authority that is not his own. Most of the bill is under Title 31 which is AOGCC with the exception of section 3 which concerns how royalty payments would be made. In general, MR. BOYD said, the administration believes these types of reductions can be handled under existing law and HB 207. Page 2, line 10 of SB 114 requires the lessee to demonstrate some need and he thought that was better than the house bill version. However, the level of scrutiny here stops with the commission and there was no legislative oversight. In summary, MR. BOYD said, he thought that HB 207 was the better. It is existing law that will get them where they want to go with heavy oil. MR. BOYD said he hadn't discussed this with industry or AOGCC. He didn't think they had a way for industry to demonstrate need, yet, and noted there are no economics in their mandate. Number 112 SENATOR LEMAN said the language as drafted does create a little bit of a question, but it was the committee's intention that this be a holiday with definite terms established for it. SENATOR LEMAN said that legislative oversight may be appropriate, also. MR. BOYD offered to work with the committee on this issue. Number 138 SENATOR LEMAN announced an at ease from 3:50 p.m. to 3:54 p.m. SENATOR PEARCE moved to adopt the CS to SB 114. There were no objections and it was so ordered. SENATOR LEMAN noted that he had talked with AOGCC earlier and they would be willing to testify, but that the CS didn't really change what they would be doing. SENATOR HALFORD mentioned that the fiscal notes were out of date. SENATOR PEARCE said that HB 207 had three parts. The first one was for new fields that were not in production, the second was for fields that were in production, but were going to be shut in because they were at the end of their life, and the third was for shut in fields to bring them back on production. Under which of those three can you do specifically, Schrader Bluff or Milne Point heavy sands, she asked. MR. BOYD answered that (b) would prolong the economic life of a oil or gas field. He said the real guts of the bill would allow for production that would not otherwise be economically feasible. MR. BOYD added that the bill (HB 207) could be amended to specifically mention heavy oil. He offered to show a letter on this issue to the committee. SENATOR PEARCE said she would like to see it before the bill came back up. SENATOR LEMAN thanked everyone for their participation and adjourned the meeting at 4:00 p.m.