Legislature(2009 - 2010)BARNES 124
02/25/2010 08:00 AM House COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB264 | |
| HB273 | |
| HB318 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 264 | TELECONFERENCED | |
| += | HB 273 | TELECONFERENCED | |
| *+ | HB 318 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 264-PIPELINE FROM OUTER CONTINENTAL SHELF
8:07:21 AM
CO-CHAIR HERRON announced that the first order of business would
be HOUSE BILL NO. 264, "An Act relating to the right-of-way for,
and a state property tax exemption concerning, a pipeline
transporting oil produced on the outer continental shelf to an
established pipeline in the state."
8:08:06 AM
REPRESENTATIVE JAY RAMRAS, Alaska State Legislature, speaking as
the prime sponsor of HB 264, explained that HB 264 grew out of
Congressional legislation understanding the sensitivity to
environmental aspects of the North Slope. The Chukchi Sea and
the Beaufort Sea are very important and highly prospective
offshore oil drilling sites. The potential amount of revenue to
the State of Alaska from these sites isn't vast, but the volume
of oil that would travel through the Trans-Alaska Pipeline
System (TAPS) is vast. Therefore, as throughput of Alaska oil
declines, it becomes less valuable through the pipeline and more
costly to transport. If there was federal oil traveling through
that same pipeline, Alaska's oil would be more affordable going
to market. Therefore, the Congressional delegation has proposed
legislation that would require a submerged pipeline for the
movement of offshore oil in federal waters in both the Chukchi
and Beaufort Seas and also remove the option to tanker. This
legislation would provide the Department of Natural Resources
(DNR) commissioner the power to expedite the review of right-of-
way applications for the construction and operation of a
submerged line as well as an above-ground gathering line to join
the submerged line at the shore. Certain state tax breaks would
be offered to prospective pipeline developers. In fact, this
legislation would incentivize the onshore effort.
Representative Ramras said that the benefit of this legislation
is through delivery of oil in TAPS and the demonstration of the
willingness to work with a new corporate partner that could
potentially employ 35,000 Alaskans and increase revenue to the
North Slope region and state. He explained that using pipelines
would mitigate risk that would result from the operation of
tankers in ice-laden seas.
8:12:14 AM
REPRESENTATIVE RAMRAS expressed his desire for two narratives to
emerge from HB 264. The first narrative is the thoughtful and
deliberate corporate methodology and governance behind Shell
Oil's (Shell) actions, which aren't necessarily dictated by the
court system. Shell, he related, is trying to be a responsible
developer that is at the beginning of a 50-year plus
relationship with Alaska. The second narrative is to shine a
light on Mayor Itta and the Inupiat people and [encourage]
sensitivity to the 10,000-year tradition of hunting bowhead
whale. Both narratives are critical to understanding the
importance of above-ground pipelines while finding a balance
between extracting a valuable resource and being respectful of
the Inupiat culture. He pointed out that Shell, one of the 50
largest businesses in the world, is integrating with one of the
oldest cultures, the Inupiats, in the world. He expressed the
need for less bullying by the court system, more sensitivity
from the corporation, and more willingness to craft careful
development by the Inupiat. He further expressed the need to
continue the aforementioned conversation in order to sensitize
the members of the House to the dance between Shell Oil and the
residents of the North Slope Borough.
8:17:09 AM
REPRESENTATIVE GARDNER inquired as to the meaning of Section 3.
REPRESENTATIVE RAMRAS informed the committee that some of the
language in HB 264 was taken from the original Alaska Gasline
Inducement Act (AGIA) legislation and some language deals with
reimbursement from the state to the North Slope Borough
regarding tax provisions.
8:18:36 AM
REPRESENTATIVE KELLER inquired as to what HB 264 does in a
sentence.
REPRESENTATIVE RAMRAS specified that HB 264 is a tax incentive
that allows for reimbursement by the state to the North Slope
Borough for taxes for the cost of the above-ground pipeline
property tax value as it meets the federal submerged pipeline.
He related his understanding that Shell is many years away from
an actual submerged pipeline. Therefore, the legislation should
be less about the timing and more about understanding the
narratives of the two principle groups involved.
CO-CHAIR HERRON characterized HB 264 as timely enabling
legislation.
8:21:06 AM
REPRESENTATIVE GARDNER asked if a statutory change is required
for DNR to expedite the review or action.
REPRESENTATIVE RAMRAS answered that he didn't know.
CO-CHAIR HERRON asked if this legislation is more like "a kick
in the pants."
REPRESENTATIVE RAMRAS replied yes.
8:21:37 AM
REPRESENTATIVE HARRIS questioned whether the sponsor is carrying
the legislation for the administration.
REPRESENTATIVE RAMRAS answered, "I thought this bill up all by
myself." In further response to Representative Harris,
Representative Ramras said that he didn't inquire with the
administration regarding its stance on HB 264.
8:23:57 AM
CAM TOOHEY, Alaska Government and External Affairs Manager,
Shell Alaska, referring to the slide presentation entitled "Oil
and Gas In The Arctic OCS," reminded the committee that Shell
has a fairly lengthy history in Alaska. In fact, Shell began
exploring in the Cook Inlet region in the 1950s and the first
discovery and first offshore platform was Middle Ground Shoal,
the production of which continues today. Shell was also very
active in the Gulf of Alaska Bering and Beaufort Seas in the mid
1980s and then the Chukchi Sea. Shell is predominately an
offshore company worldwide. Of the 33 wells Shell has drilled
in Alaska, 32 have been located in the water. In 1988, Shell
sold its Alaska Cook Inlet leases and then re-entered Alaska, in
the Beaufort Sea, in 2005. Mr. Toohey, referring to the slide
entitled "Shell in Alaska Today," highlighted that Shell picked
up about 135 leases in the Beaufort Sea for about $85 million.
These are federal leases and revenues. In 2008, Shell obtained
275 leases in the Chukchi Sea, which amounts to about $2.1
billion. The aforementioned was the largest expenditure by any
one company in a federal lease sale. He noted that other
international oil and gas offshore companies with expertise in
Arctic and sub-Arctic regions participated in the aforementioned
lease sale, such as ConocoPhillips, Totale (ph), ENI, and
Repsall (ph). To date, Shell has expended over $3 billion on
leases and equipment. Mr. Toohey related that Shell and others
are so interested in the offshore in Alaska because of the
estimated billions and billions of barrels of oil and trillions
of cubic feet (tcf) of natural gas. Some of these numbers have
been validated with the exploration that occurred in the mid
1980s and early 1990s. He noted that all of the discoveries in
the 1980s and 1990s were stranded because of economics and
technology. However, Shell believes those hurdles have been
overcome. Still, Mr. Toohey reminded the committee that until
exploration occurs and the wells are in place, the numbers are
only estimates. He noted that he has copies available of the
Institute of Social and Economic Research (ISER) study, which is
an in-depth report on the opportunity in which Shell is trying
to participate.
8:27:15 AM
PETE SLAIBY, Vice President, Shell Alaska, clarified that
although the ISER report was commissioned by Shell, it was
performed independently using independent data and was managed
by ISER. The report encompassed the Beaufort Sea, the Chukchi
Sea, and some activity in the North Aleutian Basin. The report
assumes industry-wide participation. Referring to the slide
entitled "Alaska OCS - Benefits To Alaska and the Nation," he
highlighted that this project would provide over the 50-year
life of the project about 35,000 jobs, with some swings
occurring throughout. The project would extend the life of TAPS
by decades. He related that with the gasline coming into play,
the expenditure warrants every molecule of gas available being
set aside to support the investment. Therefore, the need to
input additional volumes from the offshore becomes more
important. Another benefit of the Alaska Outer Continental
Shelf (OCS) is the domestic energy security it would provide.
During the April 2009 visit by the U.S. Department of Interior
Secretary, it was related that the U.S. is importing close to 65
percent of its domestic oil. Therefore, the Alaska OCS presents
a major opportunity. Referring to the slide entitled "Alaska's
Future with OCS: Major Findings", Mr. Slaiby pointed out the
estimated payroll of about $72 billion [averaged over the 50-
year period], which provides $5.8 billion directly to the state
and local government. He reminded the committee that the
aforementioned is merely a snapshot in time. He then recalled
Representative Ramras discussing lowering the pipeline tariff by
increasing volumes. [The OCS] extends the life of the pipeline
and thus would result in additional oil production over a longer
period of time. Furthermore, [an OCS pipeline] provides an
opportunity to bring additional oil into the pipeline. If the
assumption is that there is a large Chukchi anchor, it could
mean a pipeline from the Chukchi Sea to Pump Station 1 and 2
over the National Petroleum Reserve-Alaska (NPR-A). The
aforementioned would bring in a lot of middle class leases on
both state leases as well as the NPR-A.
8:30:36 AM
MR. SLAIBY, in response to Representative Harris, confirmed that
the projected $5.8 million direct to state and local government
is over a 50-year period.
REPRESENTATIVE HARRIS highlighted that the [OCS] is federal
waters, and thus the revenue to the state would be less than if
it were on state land.
MR. SLAIBY answered that the aforementioned would be a correct
assumption. He noted that the parameters ISER was given was
that at this point there shouldn't be an assumption of revenue
sharing. Shell is actively involved in the discussions in
Washington, D.C., regarding the desire to have revenue sharing
for the state.
8:31:38 AM
MR. SLAIBY, continuing with the slide entitled "North Slope Oil
Production without OCS," explained that the chart illustrates
the declining production in TAPS. The figures being used are
from the U.S. Geological Service (USGS) regarding the
possibility of oil, primarily from the Beaufort and Chukchi
Seas. The important thing to understand, he said, is that the
[OCS] oil will add much needed volumes to the oil pipeline. The
impact of having the volume of oil in TAPS results in a travel
time to Valdez that's four times faster. Therefore, keeping the
volumes and the temperature in the pipeline at a higher level is
hugely important. Although Shell had a false start in 2007,
Shell is now "shovel ready." Since infrastructure is a major
issue, Shell is bringing it all from Dutch Harbor. The
aforementioned involves all the logistics, including
transportation, oil spill response, and material supply.
MR. SLAIBY, referring to the slide entitled "Technical
Solutions," then turned to what the solutions would look like.
He stressed the importance of realizing that this isn't a Gulf
of Mexico solution. The report considered the volumes and the
break even economics to support a structure, which are
significant. Drawing from the ISER report, he related that
there would be approximately four to six structures in the
Beaufort Sea and an equal amount in the Chukchi Sea and perhaps
two structures in the North Aleutian Basin. The aforementioned,
he reminded the committee, is merely a snapshot and it will
likely be different. The point, he said, is that this project
will require heavy, robust structures albeit fewer of them and
there are fewer companies that could support such development.
He explained that the structures illustrated on the slide
entitled "Technical Solutions" and "Arctic Class Platforms" are
concrete gravity-based structures. These structures sit solidly
on the bottom and are designed to break-up multi-year ice and
work on the principle of an upside down icebreaker such that the
ice is thrown over the top and is broken on the way down.
Clearly, multi-year ice and cold is of concern as are the
shallow waters that are less than 150 feet. The technology has
been proven for almost 50 years. The sea states and wind
conditions are probably less than other areas where Shell
operates. He related that Shell has concrete gravity-based
structures in the North Sea, some of which have been in place
since 1975, in sea state and wind state that exceed what will
occur in the Chukchi and Beaufort Seas. The key to the Chukchi
Sea and Beaufort Sea structures is to design them in a robust
fashion that will withstand the multi-year ice.
8:35:30 AM
CO-CHAIR MUNOZ asked if Shell has submerged pipe in the North
Sea.
MR. SLAIBY replied yes, adding that it's all basically standard
pipeline at this point.
8:36:02 AM
CO-CHAIR HERRON surmised then that these structures are similar
yet unique in comparison to the North Atlantic structures. He
questioned whether it was because the North Atlantic is deep in
comparison to the [Chukchi and Beaufort Seas].
MR. SLAIBY clarified that it would depend upon the location of
the drilling in the North Atlantic. There are floating
solutions in the North Atlantic, in the area west of the
Shetland Islands in the north of Scotland. These concrete
gravity structures were utilized in the 1970s for the Scottish
area of the North Sea as well as for some areas in the Norwegian
sector. The concrete-gravity was convenient because they could
be constructed locally in yards close to the areas. There are
deep water fjords in Norway that supported this, he noted. [The
concrete gravity-based structure] was an ideal value proposition
for many areas, such as the Phillips field and others.
8:37:13 AM
MR. SLAIBY related that perhaps the most important thing Shell
learned upon its return to Alaska can be summarized with the
following statement made in 2007 by Mayor Itta, "Too much, too
soon, too fast." Shell listened to Mayor Itta, the assembly,
and the planning committees in Kotzebue and Barrow, which lead
to Shell revising its programs. He opined that although Shell
is confident it will meet shareholder and stakeholder concerns,
Shell recognizes it's a "show me" world. Therefore, Shell is
willing to move at slower pace, to gain confidence, and prove
that it can drill the wells. Shell, he relayed, believes that
once it can drill some wells and demonstrate competence,
discussions regarding pace can be held again. In response to
the stakeholders in the North Slope Borough and the Northwest
Arctic Borough, Shell has basically halved its program, at an
economic cost. Bringing the infrastructure means that Shell can
basically drill the second well for about the price of the first
well. However, he opined that it's more important to gain
confidence and a place in the community and to a have business
that spans decades. Each year Shell has well over 100 meetings
with stakeholders in different areas, although statutorily Shell
was expected to have 27 meetings. Shell has held what it refers
to as "Offshore 101" in an attempt to educate folks about
offshore [drilling]. Furthermore, Shell has spoken with a group
of elders in the North Slope Borough regarding discharge and
various environmental impacts.
8:40:02 AM
MR. TOOHEY, referring to the slide entitled "Legal Challenges,"
highlighted that some of the hurdles Shell faces are legal
challenges. In 2007 Shell's activities in both the Chukchi and
Beaufort Seas were halted by an injunction. Legal challenges
have continued as federal permits have been issued. Currently,
the main hurdle is the D.C. Circuit Court case regarding Shell's
five-year lease plan. The U.S. Department of Interior is
revising that plan and there should be some announcements
regarding that revision shortly. Those revisions will have
bearing on Shell's ability to drill in 2010 in the Chukchi Sea.
He noted that although Shell's plans of exploration have been
conditionally approved by the Minerals Management Service (MMS),
they have been challenged in the 9th Circuit Court. Mr. Toohey
pointed out that Shell has multiple other challenges to federal
activities, including listings, critical habitat, and actual
permits for Shell's activities on federal issues.
8:41:28 AM
REPRESENTATIVE HARRIS asked if most of the litigation is from
environmental groups or is it mixed with litigation from
indigenous individuals on the North Slope.
MR. SLAIBY answered that the majority of litigants in the recent
round of litigation over the Beaufort and Chukchi Seas are
environmental groups. However, he pointed out that although the
Native village of Point Hope, the Inupiat community of the
Arctic Slope, and the Alaska Eskimo Whaling Commission (AEWC)
have decided to participate in litigation, a number of village
corporations have filed briefs in support of the offshore
activity. He related his understanding that the Tikigaq
Corporation in Point Hope would support [offshore activities] as
would Olgoonik Corporation in the village of Wainwright, which
is located in an area that's highly impacted. He noted that the
North Slope Borough has chosen not to participate in this
legislation because the mayor of the North Slope Borough
believes he needs to continue to have a dialogue with the MMS in
order to address the needs of his constituents.
8:44:18 AM
MR. TOOHEY, referring to the slide entitled "Regulatory
Challenges - Permits," related that in addition to litigation
Shell faces challenges with regard to the volume of permits.
The main challenge is that most of the permits in the offshore
are federal permits and haven't been issued in the more recent
exploration activity timelines. Therefore, there is a lack of
knowledge, capacity, and process within the federal agencies to
issue these permits in a timely manner. At this point, Shell is
waiting for the Environmental Protection Agency (EPA) air permit
for the Chukchi Sea and a separate [EPA air permit] for the
Beaufort Sea. Although those processes are nearing completion,
Shell has to execute contracts for drilling activities in July,
August, and September. Therefore, Shell is in a position of
committing resources for an activity that may or may not be
permitted. The permitting, he emphasized, is a huge challenge.
Mr. Toohey related that Shell has the majority of the necessary
permits, it's just that the EPA air permit is a key permit to
obtain. Mr. Toohey explained that Shell's plan of exploration
is conditionally approved and the MMS is the main authorizer of
Shell's activities. In the conditional approval of Shell's
offshore permit, MMS would list all the required subsequent
permits. Therefore, that permit isn't usable until all the
individual sub-permits are obtained. He reiterated that the
majority of the sub-permits have been obtained, but the EPA air
permit has not and is key to the process.
8:46:27 AM
CO-CHAIR HERRON requested that Mr. Slaiby explain the comment he
related from Mayor Itta regarding MMS.
MR. SLAIBY related his understanding that during Mayor Itta's
speech to the [AEWC] the mayor related that one of the reasons
he chose not to participate in the lawsuit, specifically on the
exploration plans, is because it eliminates his ability to
address issues with the MMS. Mr. Slaiby opined that Mayor Itta
believes that not entering in the lawsuit provides him more
leeway to continue what is becoming a better dialogue with MMS.
8:47:33 AM
MR. TOOHEY, continuing with the slide entitled "Challenges Met -
Why Should Shell Be Allowed to Drill?", informed the committee
that whether Shell drills or not it would continue the baseline
science gathering process. In order to plan for success in
development, data has to be collected now because the open water
season is only 90 days long. Shell has undertaken a large
science program that is being performed in conjunction with the
North Slope Borough and others. The aforementioned program is
in addition to the federal program and state resources that are
spent on science. Oil spill response is an on-site program when
drilling occurs. That program is a new, state-of-the-art
program that hasn't been used in an exploration scenario like
this anywhere in the world. The program was modeled after [a
program] from Valdez. The oil spill response vessel supporting
that program, an ice-breaker, is the first Arctic ice-breaker
that has been built in the last 30 years. The program, which he
characterized as robust, is manned and operated by locals on the
North Slope. Mr. Toohey then informed the committee that the
2010 program is a one drill ship program without 3-D seismic,
which is much different than the original proposal.
Furthermore, it's a one-year program and thus after a year the
stakeholders, community, agencies, and Shell will be able to re-
evaluate whether the program needs to be adjusted to accommodate
concerns.
8:49:37 AM
CO-CHAIR MUNOZ asked if Shell has worked with the communities to
encourage local hire and opportunities.
MR. SLAIBY replied yes, adding that local hire is a large part
of the value proposition and includes working with the village
corporations, regional corporations, and Alaska companies in
general. Since Shell is keenly aware that without revenue
sharing, [local hire] is a major part of Shell's license to
operate in the state. For example, the aforementioned oil spill
response program is managed by the village corporation of
Barrow, Ukpeagvik Inupiat Corporation (UIC), and works in both
the Beaufort and the Chukchi Seas with opportunities to put
satellites in surrounding communities. Furthermore, Shell has
been hiring Alaskans to work in various aspects of the industry
in the Gulf of Mexico. Currently, there are 11 new operating
professionals. When Shell begins drilling [offshore in Alaska],
the Alaskans in the Gulf of Mexico will return to Alaska with
great experience. The aforementioned, he indicated, illustrates
Shell's commitment to build leadership with Alaskans in the
state. In fact, about 60 percent of Shell's office [staff] is
Alaskans.
8:51:42 AM
MR. TOOHEY, referring to the slide entitled "Summary," stated
that although the resource is big, until exploration occurs
there are only estimates. The federal leases that have been
sold and the investment to explore those leases sums billions
and billions of dollars. Therefore, it's a large investment
that only a few companies in the world can make. Furthermore,
it's a great opportunity for the state. In conclusion, he
expressed hope that Shell will be able to explore those leases
in 2010.
8:52:23 AM
CO-CHAIR HERRON recalled that the sponsor of HB 264 introduced
it to elevate dialogue and exposure of this possible
development. Co-Chair Herron then inquired as to Shell's
position on HB 264.
8:52:44 AM
MR. TOOHEY pointed out that Shell is in a stage that's much
removed from pipelines; rather, it's in a position to explore
and determine if the resource is present. Therefore, Shell
appreciates the dialogue at this stage because it provides Shell
the opportunity to discuss the economic aspects of the program.
Still, Shell remains cognizant that a dialogue regarding how to
benefit from and relate to the offshore activities needs to
occur in Alaska. Part of the aforementioned discussion includes
the North Slope Borough. He, again, related his appreciation
for the dialogue, but reiterated that Shell is focused on
exploring and trying to find a resource.
8:54:05 AM
MR. SLAIBY said that Shell recognizes that property taxes are a
large part of the value proposition for those most impacted by
this proposal, including the whalers and the subsistence
communities in both the North Slope Borough and the Northwest
Arctic Borough. Clearly, the amount of property tax the North
Slope Borough would collect is significant. In fact [the ISER]
report estimates [property tax in the amount of about] $3.5
billion will be collected. The property tax revenue as well as
job opportunities are an important part of the program for the
local residents.
8:55:25 AM
REPRESENTATIVE HARRIS surmised that two of the main concerns of
North Slope residents are regarding how to deal with the
migrating whale population in terms of the noise and activity
the pipeline operations cause and how to deal with a leak or
spill. He then inquired as to how Shell is addressing those
issues.
MR. SLAIBY agreed that the aforementioned as well as the
cumulative impact, which is the ability of the structures to
survive ice, are some of the issues of the North Slope
residents. With respect to the insonification of water, Shell
is in continual dialogue with the communities regarding the
amount of noise it causes in the water. Further, Shell seeks to
limit the amount [of noise it causes in the water] while working
in conjunction with other industries. In the Beaufort Bay, in
particular in Camden Bay, an agreement has been reached such
that Shell ceases operations during the hunting season around
Cross Island. In fact, Shell shuts down its rig and pulls it
back to about the ice limits in order to let the whales move
through. Mr. Slaiby emphasized that Shell seeks to avoid all
contact with marine mammals that it can, which is part of
Shell's incidental harassment authorization. Shell believes
that there will be enough open water and that restraint can be
used such that the communities will be satisfied. He then
related his personal opinion that there have probably been six
seismic surveys run at the same time in the Beaufort Sea and
they have impacted whaling. As the Vice President of Shell, Mr.
Slaiby said that the last thing he would want is to be accused
of impacting the subsistence hunt in Barrow. The same can be
said for industry as a whole.
MR. SLAIBY then addressed the oil spill response concern. He
told the committee that 90 percent of Shell's energy is used to
ensure no oil gets into the water, which is achieved by fully
booming out the recovery booms when things such as routine fuel
transfers occur. He emphasized that there have been large
advances of recovery of oil in broken ice and ice conditions
since the Exxon Valdez. The program Shell utilizes is three-
tiered such that [an icebreaker vessel] and a vessel of
opportunity will be located at the drill site from the moment of
operations. Furthermore, midway between the shore and the
drilling operations there will be an oil spill response barge
that has oil spill recovery booming techniques. Moreover, in
the impacted communities equipment and trained personnel will be
put in place for shore-based activities. The aforementioned is
unprecedented with respect to any type of exploration drilling.
Mr. Slaiby emphasized that Shell has an impressive record with
respective to not having blow outs. Although there may well be
a certain amount of oil that enters the water during these types
of endeavors, Shell believes it will be minimal and the
possibility of a blow out in this area would be extremely
remote.
9:00:46 AM
REPRESENTATIVE HARRIS related that he lived through the 1989
Exxon Valdez oil spill when the company said it had [the same]
in place [for spills]. However, it wasn't available for use.
Representative Harris agreed with the earlier comments that
Shell has to prove itself. He said that although he is
supportive of what Shell is doing, the lesson learned with the
Exxon Valdez spill is that the need to be prepared can't be
short changed.
MR. SLAIBY stated his agreement. He said that in his 30 years
on the production side he has chased oil, the vast majority of
which has been other's oil. The resources of Shell are deployed
to be used by any group. With the amount of traffic and transit
in the Arctic, Shell's assets will be available for use by
anyone for any cause. Mr. Slaiby reiterated his agreement with
Representative Harris, and added that beyond the capital
investments it's important to have people ready to respond.
Therefore, vast amounts of Shell's energy will be put into oil
spill response drills in order to ensure that people are
trained, the equipment is checked and operable, and the
materials are available. Shell, he said, is prepared to stand
ready for any group to judge Shell's preparedness to operate in
this environment.
9:03:18 AM
CO-CHAIR HERRON asked if the North Slope Borough will remain
silent on HB 264.
9:03:31 AM
MARLA BERG, Liaison, North Slope Borough, clarified that at this
point the borough is monitoring HB 264.
9:04:37 AM
KEVIN BANKS, Director, Division of Oil and Gas, Department of
Natural Resources, began by noting his agreement with earlier
statements that the Arctic OCS is a place of vast oil and gas
wealth. He then extended an offer to the sponsor to provide
more detailed information regarding the U.S. Department of
Interior's estimates of undiscovered resources. The Arctic OCS
is also a location where current leasing has occurred with
companies other than Shell. In the sale process that has been
conducted by the U.S. Department of Interior, there have been
new entrants to the Alaska Arctic, which he characterized as a
good sign in terms of the diversification of the state's oil
industry. With regard to tankering, he recalled his experience
working with MMS when it conducted routine petroleum technology
assessments that were conducted by fairly large and responsible
engineering firms from around the country. Those assessments
considered the possibility that tankers could berth in manmade
atolls in the Chukchi Sea to take on cargos and then move them
to the Aleutian Islands for transshipment into larger ships. He
acknowledged that every time oil is picked up and moved, there's
the potential for a spill. Tankering is an alternative that
industry can consider, but pipelining oil to shore is a much
better alternative.
MR. BANKS then turned to HB 264 specifically. The term
"expedite" in Section 1 is preferable to other language because
statute already specifies timelines. With regard to rights-of-
way in the state, Mr. Banks explained that typically those are
obtained through the pipeline coordinator's office using
reimbursable funds provided by the applicant for the right-of-
way. Therefore, there's an automatic mechanism by which the
resources required to [fund] the permitting are paid for by the
applicant. In terms of the kinds of revenue being discussed,
Shell mentioned that there is about $3.5 billion related to the
property tax that is the subject of HB 264. Of the $3.5
billion, about 95 percent of that would go to the North Slope
Borough under the current rules. He explained that normally the
state collects tax up to 20 mills in the state and that revenue
is shared with the local government, specifically the local
government would receive about 95 percent of the $3.5 billion
and the remaining 5 percent would go to the state. Section 3 of
HB 264, he related, will only impact the share the state
collects. In terms of direct revenue, which is addressed in the
fiscal note, there are direct revenues from the OCS development
to the state in the form of royalties, bonus bids, and rents
that are paid to the federal government within three to six
miles of shore. The aforementioned land in Alaska is subject to
revenue sharing with the state such that the state receives 27
percent of those revenues.
9:10:13 AM
REPRESENTATIVE HARRIS asked if Mr. Banks could describe what
real and personal property are.
MR. BANKS said he couldn't answer because he doesn't have
expertise in the area of taxes.
9:10:52 AM
REPRESENTATIVE CISSNA highlighted that the state is experiencing
a situation in which change is occurring faster than it ever
has. She then asked if the division deals with the knowledge of
when the permafrost will be present and the weather of a given
time.
MR. BANKS replied yes. He explained that prior to permitting a
project, a best interest finding by the commissioner has to be
conducted, and potential environmental impacts addressed.
However, it's not the same process the federal government goes
through under the National Environmental Policy Act through the
environmental impact statement (EIS) process and the extensive
analysis that has to be conducted by federal agencies. He
attributed that to the fact that the legislature decided that
oil development on state lands is in the best interest of the
state, and thus the state, in its findings, embellishes and
describes the relative cost of benefits. He reiterated that the
legislature has already decided that oil and gas development is
good for the state. In further response to Representative
Cissna, Mr. Banks clarified that the state can't develop its
resources with abandon and at the expense of the environment.
9:13:44 AM
REPRESENTATIVE GARDNER asked if HB 264 changes the current
practice of right-of-way actions being processed through the
pipeline office and paid for by the applicant. She then
requested further elaboration on the real property tax provision
in Section 3 of the legislation.
MR. BANKS related his understanding that the term "expedite"
means to him a nudge to start the process as soon as possible.
However, HB 264 wouldn't change any existing processes in terms
of reimbursable cost type permitting. Mr. Banks then offered
that the thrust of Section 3 is to exempt the revenue that is
for property taxes to the North Slope Borough that would be
impacted by HB 264.
9:15:41 AM
JIM GREELEY, Petroleum Property Assessor, Tax Division,
Anchorage Office, Department of Revenue, in further response to
Representative Gardner, explained that [the department] was
unclear as to the intent of Section 3 when developing the fiscal
note. Therefore, the fiscal note relates two scenarios. He
explained that the state shares property tax collections with
the local municipalities. Currently, of the 20 mills levied the
North Slope Borough has been collecting about 18.5 mills and the
state has been collecting 1.5 mills historically, and therefore
about .015 percent would go to the state. The .015 percent is
what the state would give up under the first scenario of the
fiscal note. The second scenario accounts for the potential of
the taxpayer to use the payment to the North Slope Borough as a
credit against other tax liabilities that they may have. He
reminded the committee that normally property taxes are such
that the tax, a 20 mill tax, is levied by the state and the
borough can then tax up to its mill rate for the property that
falls within its jurisdiction. The payment by the taxpayer to
the local jurisdiction is then a credit to the amount owed the
state. Under HB 264, the amount owed by the state is already
exempted, and therefore a broad interpretation of Section 3
could include the amount paid to the North Slope Borough as a
credit potentially to other types of property. Still, the
department is unsure of the intent of HB 264.
9:19:00 AM
REPRESENTATIVE HARRIS asked if the language on page 3, lines 3-
4, is an attempt to encourage the development of a pipeline
onshore and to discourage tanker operations that would take oil
from offshore rigs and not place it in the pipeline.
MR. GREELEY responded that although the aforementioned seems to
be a reasonable interpretation of the intent of the legislation,
he is hesitant to speak for the sponsor.
9:20:57 AM
CO-CHAIR HERRON announced the intent of the co-chairs to forward
HB 264 from committee today.
9:21:12 AM
CO-CHAIR MUNOZ pointed out that there is quite a difference in
the potential tax liability under scenarios 1 and 2. Under
scenario 1, the potential tax liability is $8-$16 million, while
under scenario 2 the tax liability is $118-$214 million. She
then opined that the sponsor's intent seems to be to reach
scenario 2.
REPRESENTATIVE RAMRAS related his intent to work with DOR to
clarify Section 3. He then opined that it's very early to
assess where the valuation of the pipeline goes. Still,
Representative Ramras related his belief that an above-ground
pipeline will provide the ability for many marginally economic
fields on the way to TAPS to be accessed and potentially provide
great value to the state. Although Representative Ramras
recognized that HB 264 is less likely to pass through both
legislative bodies, it will hopefully lead to provocative
discussions.
9:23:04 AM
REPRESENTATIVE HARRIS asked if his understanding that the intent
of HB 264 is to protect the interest of the local community on
the North Slope is correct.
REPRESENTATIVE RAMRAS replied yes.
REPRESENTATIVE HARRIS then encouraged passage of HB 264.
9:23:58 AM
REPRESENTATIVE CISSNA stated that she identifies very much with
Mayor Itta's comments because what [this legislation] is
addressing is something the legislature needs to grasp. The
fact, she said, is that the climate in Alaska is changing
dramatically. Furthermore, the change is occurring faster [near
the OCS] than elsewhere. The residents of these communities are
dependent on oil and gas for heating and transportation needs.
Although these communities weren't initially driven by money,
they are dependent upon it now. Also, these communities are
having a more difficult time obtaining fuel. For instance,
communities that have fuel delivered by river are feeling the
impact of lower water levels that cause the river not to reach
as far and thus the fuel has to be flown to these communities.
The cost for such is high. Representative Cissna emphasized
that this committee is charged with helping these communities
face the future in a sustainable manner. She then suggested
that the state legislature needs to address the challenge that
the state lacks a diverse economy and is dependent on oil and
gas to sustain government. The fiscal policy subcommittee, she
related, is reviewing the fact that Alaska doesn't do a good job
building alternative industry. Alaska, she suggested, is in
many ways acting as a colonial state because multi-nationals
actually support the state. This issue needs to be addressed by
the legislature, she emphasized.
REPRESENTATIVE RAMRAS said that he shares the sensitivity of
Representative Cissna. However, he related his belief that the
community of Barrow is far more durable and time tested than the
urban centers of Alaska.
9:29:33 AM
REPRESENTATIVE MILLETT characterized HB 264 as timely
legislation and related that she is excited at the prospects of
offshore production. She then commended Shell. Representative
Millet then related that she is very sensitive to sustainable
living and a subsistence lifestyle because her mother lived such
a life. Shell, she opined, has done an incredible job in terms
of engaging the North Slope community and has set the bar high
for future developers. She further opined that Shell is a good
partner for the state.
9:31:14 AM
REPRESENTATIVE GARDNER remarked that she has found today's
presentation to be fascinating. Although she, too, commended
Shell's efforts to be sensitive to communities, she said she
didn't feel she understands what the legislation does,
particularly in terms of the tax incentives. Representative
Gardner remarked that although a pipeline is better for the
state than tankers, she hasn't heard any evidence that a tax
incentive is necessary for such a decision to be made.
Obviously, as the testimony has related, there is great interest
in the resources in the Arctic seas. Furthermore, she noted
that she hasn't heard that the property tax is a burden.
Therefore, she announced that she isn't ready to forward HB 264
from committee.
9:32:52 AM
REPRESENTATIVE HARRIS surmised that everyone understands that
the issue of climate change is real, regardless of one's belief
of the cause. The Arctic ice is receding and there is a good
chance that in 10-15 years there will be a clear year round path
up the western side of Alaska to the North Slope. The
aforementioned will allow for tanker traffic as well as other
traffic. He emphasized that it's not in the best interest of
Alaska to have tanker traffic go to the North Slope and not use
Alaska's in-state facilities, which is a real possibility.
Representative Harris said:
We want to do whatever we can to make it more
attractive to bring that oil and gas onshore and use
the facilities that we have, and hopefully will have
for many, many years, to the benefit of Alaska, Alaska
residents, jobs and all that sort of thing. Rather
than do what we've done in this state for a long time,
and move our natural resources out of state without
any change .... That could be a possibility. I
believe that part of this bill may be an encouragement
to try and keep that from happening.
9:34:42 AM
REPRESENTATIVE KELLER said he is encouraged that Shell is still
present, in spite of the setbacks it has faced. He echoed
earlier statements regarding appreciating Shell's approach and
being sensitive to the environment and the culture.
9:35:25 AM
CO-CHAIR HERRON said he didn't believe HB 264 will get all the
way to the governor. Although Co-Chair Herron understood the
concerns of committee members and the desire to have the
discussion in this committee, the wishes of the sponsor will be
respected. To that end, he requested a motion.
9:36:18 AM
CO-CHAIR MUNOZ moved to report HB 264 out of committee with
individual recommendations and the accompanying fiscal notes.
REPRESENTATIVE GARDNER objected.
9:36:33 AM
A roll call vote was taken. Representatives Millet, Harris,
Keller, Herron, and Munoz voted in favor of reporting HB 264
from committee. Representatives Cissna and Gardner voted
against it. Therefore, HB 264 was reported out of the House
Community and Regional Affairs Standing Committee by a vote of
5-2.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 264 Sponsor Statement.PDF |
HCRA 2/4/2010 8:00:00 AM HCRA 2/25/2010 8:00:00 AM |
HB 264 |
| HB264-DOR-TAX-2-2-10 Tax on Pipeline from outer continental shelf.pdf |
HCRA 2/4/2010 8:00:00 AM HCRA 2/25/2010 8:00:00 AM |
HB 264 |
| HB318-DEC-CO-02-22-2010.pdf |
HCRA 2/25/2010 8:00:00 AM |
HB 318 |
| HB 264 - Shell in AK 2.25.10.ppt |
HCRA 2/25/2010 8:00:00 AM |
HB 264 |
| HB 264 - OCS Benefits Study 2-page summary.doc |
HCRA 2/25/2010 8:00:00 AM |
HB 264 |
| HB 273 - Borough Entitlement Statistics.PDF |
HCRA 2/11/2010 8:00:00 AM HCRA 2/25/2010 8:00:00 AM |
HB 273 |
| HB 273 - Cert. of Entitlement LTR.PDF |
HCRA 2/11/2010 8:00:00 AM HCRA 2/25/2010 8:00:00 AM |
HB 273 |
| HB 273 - Municipal Selection Eligible Map.pdf |
HCRA 2/11/2010 8:00:00 AM HCRA 2/25/2010 8:00:00 AM |
HB 273 |
| HB 273 - Municipal Selection Land Status Map.pdf |
HCRA 2/11/2010 8:00:00 AM HCRA 2/25/2010 8:00:00 AM |
HB 273 |
| HB 273 - Sponsor Statement.PDF |
HCRA 2/11/2010 8:00:00 AM HCRA 2/25/2010 8:00:00 AM |
HB 273 |
| HB 273 - Yakatat Borough Acreage Press Release.PDF |
HCRA 2/11/2010 8:00:00 AM HCRA 2/25/2010 8:00:00 AM |
HB 273 |
| HB 273-DNR-TAD-02-08-2010.pdf |
HCRA 2/11/2010 8:00:00 AM HCRA 2/25/2010 8:00:00 AM |
HB 273 |
| HB 264 - Econ Analysis of OCS Dev-Exec Summary (2).pdf |
HCRA 2/25/2010 8:00:00 AM |
HB 264 |
| HB 318 - Sponsor Statement.PDF |
HCRA 2/25/2010 8:00:00 AM |
HB 318 |
| CS HB 318 Version R.PDF |
HCRA 2/25/2010 8:00:00 AM |
HB 318 |
| HB264-DNR-CO-02-24-2010.pdf |
HCRA 2/25/2010 8:00:00 AM |
HB 264 |