04/16/2016 03:00 PM Senate FINANCE

HOUSE BILL NO. 373                                                                                                            
                                                                                                                                
     "An  Act approving  and ratifying  the sale  of royalty                                                                    
     oil by  the State of  Alaska to Tesoro  Corporation and                                                                    
     Tesoro   Refining  and   Marketing  Company   LLC;  and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
3:22:51 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Micciche spoke  to the  fiscal note  attached to                                                                    
the bill.                                                                                                                       
                                                                                                                                
Co-Chair MacKinnon noted the analysis  on the second page of                                                                    
the fiscal note:                                                                                                                
                                                                                                                                
     This bill  provides legislative approval of  a contract                                                                    
     negotiated  between  the  State of  Alaska  and  Tesoro                                                                    
     Refining  and Marketing  Company, LLC  for the  sale of                                                                    
     the state's royalty oil for a term of five years.                                                                          
                                                                                                                                
     There  will  be  no  fiscal  impact  to  the  operating                                                                    
     expenditures.  During the  course of  the contract  the                                                                    
     proposed  sale will  provide the  State with  a minimum                                                                    
     estimate  of $45.2  million in  revenue in  addition to                                                                  
     what would  have been obtained  if the State  of Alaska                                                                  
     elected  to  receive   its  royalties  in  value.  This                                                                  
     estimate is based upon the  March 2016 Revenue Forecast                                                                    
     oil value.                                                                                                                 
                                                                                                                                
3:24:36 PM                                                                                                                    
                                                                                                                                
JIM   SHINE,   SPECIAL   ASSISTANT  TO   THE   COMMISSIONER,                                                                    
DEPARTMENT OF  NATURAL RESOURCES,  detailed that  the fiscal                                                                    
note had  been revised as  the result of  committee comments                                                                    
during the  initial presentation.  He stated that  the price                                                                    
of oil  was difficult to  project, but that the  fiscal note                                                                    
reflected  the  projected  benefit   that  the  state  would                                                                    
receive, over  royalty in  value, over the  next 5  years of                                                                    
approximately $8 million  to $9 million per  year. He shared                                                                    
that the  contract would be for  the sale of 20  thousand to                                                                    
25  thousand barrels  of  royalty oil  to  Tesoro, per  day,                                                                    
beginning  August   1,  2016.  He  said   that  the  figures                                                                    
represented the  difference between royalties in  kind (RIK)                                                                    
and royalty  in value  (RIV). He relayed  that the  net back                                                                    
formula for  RIV included a marine  transportation reduction                                                                    
of approximately $3.50, a RIK  situation would have a static                                                                    
$1.95 per  barrel deduction as  a location  differential. He                                                                    
explained that  the delta  between the  $1.95 and  the $3.50                                                                    
was reflected  as a  benefit in the  fiscal note,  and would                                                                    
increase from FY 17 to FY  22. He directed attention to page                                                                    
11  of the  "Best Interest  Finding" (copy  on file),  which                                                                    
showed a  projected increase in marine  transportation costs                                                                    
over the next five years.                                                                                                       
                                                                                                                                
3:26:32 PM                                                                                                                    
                                                                                                                                
Vice-Chair Micciche MOVED to report  HB 373 out of Committee                                                                    
with individual recommendations  and the accompanying fiscal                                                                    
note.                                                                                                                           
                                                                                                                                
HB  373 was  REPORTED  out  of committee  with  a "do  pass"                                                                    
recommendation  and with  one new  fiscal  impact note  from                                                                    
Department of Natural Resources.                                                                                                
                                                                                                                                
3:26:59 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:28:29 PM                                                                                                                    
RECONVENED