Legislature(1995 - 1996)
04/27/1995 08:35 AM House FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 320
An Act approving the sale of Prudhoe Bay Unit royalty
2
oil by the State of Alaska to Tesoro Alaska Petroleum
Company; and providing for an effective date.
JOHN SHIVELY, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES
testified in support of HB 320. He gave a brief overview of
the legislation. He observed that HB 320 approves the sale
of Prudhoe Bay Unit royalty oil by the state of Alaska to
the Tesoro Alaska Petroleum Company. He noted that the
Alaska Royalty Oil and Gas Development Advisory Board
reviewed the contract with unanimous support. The contract
allows:
* Tesoro to buy 40,000 thousand barrels a day or 30
percent of the Prudhoe Bay Unit royalty oil;
* The State to retain 108 thousand barrels of
Prudhoe Bay Unit royalty oil; and
* Grants Tesoro a three year contract based on the
west coast value paid to Exxon.
Commissioner Shively maintained that the contract provides
the State with a premium. He noted that the Commissioner of
the Department of Natural Resources is required by law to
obtain the minimum price that would result from the sale of
the oil by the British Petroleum Company (BP). He noted
that Tesoro has provided the State with a letter of credit.
Commissioner Shively emphasized that Tesoro provides local
employment. He stressed that in-state processing has
reduced the price of petroleum products in the state.
In response to a question by Representative Mulder,
Commissioner Shively reiterated that the contract runs for
three years. He clarified that the contract would be
renegotiated at the end of three years.
BERNIE SMITH, TESORO ALASKA PETROLEUM COMPANY spoke in
support of HB 320. He emphasized that Tesoro's current
contract will end December 30, 1995. He noted that 80
percent of Tesoro's crude oil comes from the state of
Alaska. He referred to statements made in "An Analysis of
the Department of Natural Resources Three-Year Contract for
the Sale of Prudhoe Bay Royalty Oil to Tesoro Alaska
Petroleum Company" dated March 29, 1995 (copy on file). He
observed that the contract would require that at least 80
percent of the oil purchased be processed at Tesoro's
Nikiski refinery. He emphasized that there are no other
stable long term sources of crude oil for the Nikiski
refinery. He stressed that if the contract is not ratified
before the legislature adjourns that Tesoro would lose 80
percent of its crude oil and its refinery would be
jeopardized.
Mr. Smith asserted that Tesoro is paying a premium for the
3
contract. He emphasized that Tesoro can live with the
negotiated price. Mr. Smith noted that the contract states
that if the North Slope Export Ban is lifted the price will
be renegotiated.
Representative Therriault summarized that 100 percent of the
royalty constitutes 80 percent of Tesoro's crude oil at the
Nikiski refinery. He asked why the contract allows Tesoro
to use only 80 percent. Mr. Smith explained that the
provision allows Tesoro to adjust refinery rates to meet
demand.
JOHN TILLINGHOUSE, COUNSEL, TESORO ALASKA PETROLEUM COMPANY
explained the in value price. He referred to page 15 of
Tesoro's analysis. He explained that the Exxon price has
been $.19 cents a barrel higher than the in-value price.
In response to a question by Representative Grussendorf, Mr.
Commissioner Shively stated that any disadvantage in the
contract effects Tesoro. He stressed that there is no risk
to the State. He added that if the State audits and finds
that Exxon has under reported, Tesoro could be required to
pay additional money. Tesoro could also be disadvantaged by
the reopening of the Export Ban.
Representative Brown asked how the current in-value price
compares to the settlement price in the Amerada Hess case.
Mr. Tillinghouse stated that all the prices used by Tesoro's
analysis flow from the Amerada Hess settlement.
Commissioner Shively emphasized that the BP price was not
used because the transportation cost was not included. He
explained that the State has 6 years to audit the Exxon
price. He added that the State's price is higher and the
letter of credit submitted by Tesoro is longer.
Mr. Smith noted that Tesoro's letter of credit has
previously been for 60 days. The State requested a 90 day
letter of credit. The contract represents a compromise of
75 days. Tesoro remains in negotiation with their charter
shipper to reduce the letter of credit to 60 days. He
acknowledged that the State needs assurance that if Tesoro
defaults there is a ship to carry the oil.
In response to a question by Representative Navarre, Mr.
Smith noted that Tesoro would be required to pay within a
three working days after billing. He emphasized that Tesoro
has never failed to make a payment to the State.
Representative Navarre maintained that the lengthening of
the letter of credit puts Tesoro at risk by reducing their
capital availability.
4
Mr. Tillinghouse noted that Mapco receives state royalty oil
without posting a letter of credit. He emphasized that the
additional banking costs will be $156.0 thousand dollars a
year and will tie up $8 to $9 million dollars.
Representative Navarre stressed that the State is well
protected by the contract.
Representative Brown asked if Tesoro has ever failed to take
delivery of the oil. Mr. Smith could not recall any time
Tesoro failed to take delivery. Mr. Tillinghouse pointed
out that Tesoro is obligated for the oil regardless of their
ability to take delivery. Tesoro would have to give the
State six months notice to not take delivery. Mr. Smith
anticipated that Tesoro will be able to use all the crude
available. Mr. Tillinghouse added that if Tesoro gives six
months notice on their inability to take delivery they would
be assessed a penalty. Mr. Smith expressed confidence that
Tesoro can maintain the terms of the contract.
In response to a question by Representative Brown,
Commissioner Shively stated that a competitive bid was not
considered. He noted that the State is considering a
competitive sale in the future. He emphasized that Tesoro
provides the State with economic benefits as an in state
producer.
Mr. Bernie clarified that Tesoro is seeking a long term
contract.
Representative Navarre commended Tesoro in their success in
Alaska. He MOVED to report HB 320 out of Committee with
individual recommendations and with the accompanying fiscal
notes.
HCS CSSB 135 (FIN) was reported out of Committee with "no
recommendation" and with three fiscal impact notes; one by
the Department of Revenue, dated 3/30/95; one by the
Department of Public Safety, dated 3/30/95; and one by the
Department of Education, dated 4/11/95; and with two zero
fiscal notes; one by the Department of Corrections, dated
3/30/95; and one by the Department of Law, dated 4/11/95.
| Document Name | Date/Time | Subjects |
|---|