02/07/1996 03:43 PM Senate RES

 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.