Legislature(2023 - 2024)BARNES 124
03/22/2024 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB295 | |
| HB387 | |
| HB388 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| * | HB 388 | ||
| += | HB 295 | TELECONFERENCED | |
| += | HB 349 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 387 | TELECONFERENCED | |
HB 388-COOK INLET RESERVE-BASED LENDING
1:46:45 PM
CHAIR MCKAY announced that the final order of business would be
HOUSE BILL NO. 388, "An Act relating to state loans for oil and
gas projects in the Cook Inlet sedimentary basin; relating to
the Alaska Energy Authority; relating to the Alaska Industrial
Development and Export Authority; and providing for an effective
date."
1:47:12 PM
TREVOR JEPSEN, Staff, Representative Thomas McKay, Alaska State
Legislature, presented HB 388 on behalf of the House Resources
Standing Committee, sponsor, on which Representative McKay
serves as chair. He began the PowerPoint presentation [hard
copy included in committee packet] on slide 2, "Cook Inlet Gas
Shortage," and stated that a projected gas shortage in Cook
Inlet threatens the energy security of Southcentral Alaska, with
the earliest estimated shortfall being 2027. He declared that a
public poll taken in Southcentral Alaska in July 2023 expressed
a high level of opposition to importing natural gas, unless
doing so were less expensive than locally produced natural gas,
and a high level of support for incentives for oil and gas
companies to find and produce more Cook Inlet gas. He stated
that both ENSTAR Natural Gas Company and the Alaska Energy
Authority (AEA) project liquid natural gas (LNG) imports will be
significantly more expensive than locally produced Cook Inlet
gas. He referred to the figure in slide 2 depicting the
predicted rising fuel cost of coal, natural gas, LNG, and diesel
and claimed that HB 388 would invest in the Cook Inlet gas
reserves for the benefit of Alaskans. He opined that the
private sector has not invested in the Cook Inlet gas reserves
due to the competitive global market and Cook Inlet being a
stranded gas market with a cap on demand.
1:49:50 PM
MR. JEPSEN transitioned to slide 3, "Cook Inlet Gas: Private
Capital Attraction Issues," and discussed the reasons for the
hesitancy of private capital investing in Cook Inlet. He
alleged that financial institutions are confronted with
limitations to capital, counter party risks, and geopolitical
factors, which necessitates collaboration with entities that can
mitigate portions of these risks. He remarked on the unusuality
of the lack of private capital investment even though Cook Inlet
is a proven reserve. He explained the lack of investment is
primarily due to Cook Inlet being a stranded gas market with a
cap on demand of roughly 70 billion cubic feet (Bcf) per year,
which is a large disincentive toward investment due to the
reduced potential rate of return.
1:51:04 PM
MR. JEPSEN continued to slide 4, "Reserve-Based Lending (RBL),"
and explained that RBL is a financing mechanism tailored to
independent oil and gas companies that only engage in
exploration and production. He noted that Alaska contained two
unique, independent oil and gas companies, ConocoPhillips
Alaska, Inc., which is the largest independent oil and gas
company in the world, and Hilcorp, which is the largest
privately owned independent oil and gas company in the world.
He explained that RBL is a "borrowing-base" type of loan based
on the projected net present value (NPV) of cash flows generated
by the underlying oil and gas assets, and the repayment of the
loan comes from the selling of oil and gas. He added that RBL
is characterized by a dynamic nature and the value can be
periodically adjusted to reflect shifts in underlying
assumptions, which serves as a "de-risking" factor as the
changing market conditions can be reflected in the loan amount.
He asserted the RBL is a well-established financing method that
started in the U.S. and expanded globally, with Alaska
resembling the international market compared to the U.S. market.
He clarified that the state does not need to be the sole funder
for RBL and can share the financing with other entities.
1:54:18 PM
MR. JEPSEN moved to slide 5, "Reserve Classifications," and
described the difference between the deterministic and
probabilistic methods of classifying reserves. He explained
that the most common method is deterministic and calculates
reserves based on geology, technology, and economic conditions
and breaks the classification into three categories based on the
allowed degree of uncertainty. The probabilistic method takes
the inherent uncertainty of the calculations and provides a
range of values based on the probability distributions used. He
emphasized that the probability method provides a comprehensive
view of the uncertainty and risk to make informed decisions. He
compared the similarity between the three levels of
deterministic method classification to the 90 percent, 50
percent, and 10 percent probability classifications of the
probability method.
1:56:27 PM
CHAIR MCKAY clarified the meaning of "oil behind pipe" as oil
and gas wells that have been drilled and cased, are ready to be
harvested, and are classified as 90 percent probable to be
productive. He added that exploration is riskier because it is
around a 10 percent probability.
1:57:41 PM
The committee took an at-ease from 1:56 p.m. to 1:59 p.m.
1:59:11 PM
MR. JEPSEN remained on slide 5, "Reserve Classifications," and
recommended that a state-funded RBL program should focus only on
proven reserves to maximize the benefit to Alaska and minimize
the risk of state funds. He declared that the current version
of HB 388 does not explicitly designate proven reserves, but the
drafted committee substitute explicitly states that funds may be
used only for developing proven reserves. He added that AEA is
not included in the RBL program in the committee substitute.
2:00:23 PM
MR. JEPSEN transitioned to slide 6, "HB 388 - Cook Inlet
Reserve-Based Lending (Ver. A)," which read as follows [original
punctuation provided]:
Establishes Cook Inlet Reserve Based Lending funds
under both AIDEA and AEA
Does not specify any appropriation, simply creates the
fund allowing legislature flexibility to fund directed
projects
Funds may be used for reserve-based loans deemed
necessary to increase oil and gas production from the
Cook Inlet Sedimentary Basin
2:01:02 PM
MR. JEPSEN followed with slide 7, "HB 388 - Sectional Analysis
(Ver. A)," which read as follows [original punctuation
provided]:
Sec. 1: Establishes the Cook Inlet Reserve-Based
Lending Fund within the Alaska Energy Authority,
specifying its composition from appropriations by the
legislature.
Sec. 2: Establishes the Cook Inlet Reserve-Based
Lending Fund within the Alaska Industrial Development
and Export Authority, specifying its composition from
appropriations by the legislature.
Sec. 3: Provides for an immediate effective date.
2:01:20 PM
REPRESENTATIVE RAUSCHER said he heard that Hilcorp was looking
for investors and asked for clarification whether loans would be
what it was looking for.
2:01:47 PM
MR. JEPSEN stated this bill was put together with input from oil
and gas companies and that those companies would benefit from a
state-funded loan program.
2:02:04 PM
REPRESENTATIVE RAUSCHER asked whether the state would consider
the financials of the company taking out a loan.
2:02:35 PM
MR. JEPSEN affirmed that all factors considered when taking out
high capital loans would be the same with an RBL program and
added that Alaska Industrial Development and Export Authority
(AIDEA) would speak to the process at the next bill hearing.
2:02:58 PM
CHAIR MCKAY clarified that RBL programs are used in other
foreign countries similar to Alaska that own all mineral rights
and are usually paid back.
2:03:59 PM
REPRESENTATIVE MEARS recalled that AIDEA already has a loan
program and asked what the difference is between its current
system and a new RBL program.
2:04:38 PM
MR. JEPSEN answered that AIDEA can engage in bonding projects
but does not appear to be doing so; having the legislature
create an individual fund would encourage investment in Cook
Inlet. He added that the current AIDEA loans are only within
tens of millions of dollars while the Cook Inlet project would
require three to four hundred million dollars, and having
legislative oversight would be preferable.
2:05:38 PM
REPRESENTATIVE MEARS asked whether HB 388 would be capitalizing
the RBL program at hundreds of millions of dollars.
2:05:50 PM
MR. JEPSEN answered it would be up to the legislature but would
be an option with the fund.
2:06:21 PM
REPRESENTATIVE MEARS inquired as to the total funds AIDEA has
available.
2:06:39 PM
MR. JEPSEN replied that he did not have the exact number but
alleged that it was low hundreds of millions of dollars.
2:07:25 PM
REPRESENTATIVE RAUSHER moved to adopt the proposed committee
substitute (CS) for HB 388, Version 33-LS1237\U, Nauman,
3/15/24, as the working document. There being no objection,
Version U was before the committee.
2:07:55 PM
MR. JEPSEN continued the presentation on slide 8, "CSHB 388(RES)
Summary of Changes," which read as follows [original
punctuation provided]:
Sec. 1: Removes the establishment of a Cook Inlet
reserve-based lending fund under AEA and replaces it
with a new section to AS 44.88 relating to reporting
requirements for AIDEA on the evaluation of Cook Inlet
oil and gas development projects which the authority
deems has the potential to increase oil and gas
production from the Cook Inlet sedimentary basin. The
report shall be delivered to the senate secretary and
chief clerk by the first day of each regular session.
Sec. 2: Amends section 2 of HB 388 version A by
removing the definition of "reserve-based loan" from
44.88.850(b).
Sec. 3: Adds a new section under 44.800.900 for
definitions of "oil and gas development project" and
"reserve-based loan".
Sec. 4: Same as section 3 in HB 388 version A.
2:09:48 PM
CHAIR MCKAY emphasized that Version U would not commit the state
to act and only would create regulatory and statutory framework
for AIDEA to analyze possible projects.
2:10:34 PM
REPRESENTATIVE MEARS clarified that Version U would provide the
legislature with a way of approving projects proposed by AIDEA
through approving the capitalization of funds.
2:11:21 PM
CHAIR MCKAY affirmed that is correct alongside the governor also
having to sign funding.
2:11:48 PM
MR. JEPSEN added that his office is discussing with AIDEA to
amend the proposed legislation to allow it to involve this new
fund with its existing revolving fund.
2:12:20 PM
REPRESENTATIVE RAUSCHER asked whether the legislature gets
another fiscal note when loans go through AIDEA.
2:12:33 PM
MR. JEPSEN responded that the [attached] fiscal note [would be a
zero fiscal note], as funds would be appropriated through the
operating budget. He clarified that the legislature could fund
these projects already, but Version U would make AIDEA provide
more information on potential projects to facilitate better
decision-making.
2:13:28 PM
REPRESENTATIVE RAUSCHER asked whether the committee had talked
to AIDEA.
CHAIR MCKAY answered that AIDEA would be testifying to provide
feedback on Version U.
2:13:36 PM
MR. JEPSEN clarified that AIDEA has been involved and had
provided recommendations for a further committee substitute.
2:13:52 PM
REPRESENTATIVE MEARS questioned why the original bill involved
AEA and why the proposed committee substitute would remove that
involvement.
2:14:07 PM
MR. JEPSEN explained that after discussing with both entities,
AIDEA appeared to be better equipped to administer an RBL
program due to the amount of revolving capital it has and what
it specializes in.
2:14:59 PM
CHAIR MCKAY announced that HB 388, Version U, was held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 387 Am. Packet.pdf |
HRES 3/22/2024 1:00:00 PM |
HB 387 |
| HB 388 Sponsor Statement.pdf |
HRES 3/22/2024 1:00:00 PM |
HB 388 |
| HB 388 ver. A.pdf |
HRES 3/22/2024 1:00:00 PM |
HB 388 |
| HB 388 Sectional Analysis Version A.pdf |
HRES 3/22/2024 1:00:00 PM |
HB 388 |
| HB 388 Presentation (HRES).pdf |
HRES 3/22/2024 1:00:00 PM |
HB 388 |
| HB 388 Fiscal Note #1 DCCED-AEAREA.pdf |
HRES 3/22/2024 1:00:00 PM |
HB 388 |
| HB 388 Fiscal Note #2 DCCED-AIDEA.pdf |
HRES 3/22/2024 1:00:00 PM |
HB 388 |
| CSHB 388(RES) LS-1237U.pdf |
HRES 3/22/2024 1:00:00 PM |
HB 388 |
| CSHB 388(RES) LS-1237U Summary of Changes.pdf |
HRES 3/22/2024 1:00:00 PM |
HB 388 |