Legislature(1999 - 2000)
04/12/1999 03:12 PM Senate RES
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* first hearing in first committee of referral
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SB 134-WELL REGULATORY COST CHARGE/CONS TAX
SENATOR PEARCE explained that SB 134, the program receipts bill,
repeals the existing oil and gas conservation tax and institutes a
stable funding source to assure the Commission is capable of
carrying out its objective of protecting the public interest. Its
primary goal is to ensure that no hydrocarbons are wasted and that
operations are conducted in a manner that provides maximum recovery
of the resource. The original intent of the Legislature was to
have the oil and gas industry pay for this function of the
Commission through the oil and gas conservation tax. The system
was adequate in the past, but it is no longer sufficient to cover
the costs associated with the operation of the Commission. The
conservation tax is directly proportional to deduction with a
formula per barrel fee rate. The work of the Commission is not
proportional to the production of oil and gas. Production is
declining, but the work of the Commission is not.
SB 134 creates a program receipt system in which the regulatory
cost charge is directly associated with the total volume of fluids
produced or injected. This type of system more accurately reflects
the factors directly associated with the workload of the
Commission. It would only assess costs when there is production or
injection. Exploratory wells would not have that burden until they
begin production. It also contains a provision to provide for
recovery of costs associated with an investigation or hearing.
Those costs would be allocated to the parties involved, as opposed
to being allocated across all wells in production.
SB 134 creates a stable funding source that would enable the AOGCC
to provide the monitoring services necessary to protect the future
of Alaska's interests. She said she was unaware of the fact that as
of June 1 the AOGCC was going to have to close its doors because of
a budget shortfall. The Commission has not received any money for
maintenance of their building in at least 10 years and they
desperately need a new roof because they have leaks that are
causing them to cover their desks with visqueen at night. They are
concerned about losing many of the records that they are charged
with keeping by statute.
The proposed CS (N version by Mr. Chenoweth) changes language on
page 2, line 18 to "calendar year" because the industry reports are
done by calendar year. This reflects the legislature's and the
AOGCC's intent to have the flexibility to assess the regulatory
cost charge by field, pool, or well.
Also, language on page 4, lines 11-17, contains new transition
language that will allow them to continue the regulatory cost
charge until the new regulations take effect under SB 133.
CHAIRMAN HALFORD asked if the new mechanism would generate about
$2.3 million per year while the old one generates about $1.5.
SENATOR PEARCE answered that the new mechanism could generate more
than that.
Number 320
SENATOR MACKIE moved to adopt the CS (LS0259/N Chenoweth) to SB
134. There were no objections and it was so ordered.
COMMISSIONER CHRISTENSON, Chairman of the AOGCC, said their job is
to watch the subsurface estate for the State of Alaska and to
settle disputes on property, etc. The AOGCC controls all of the
drilling done in the State. It also keeps track of all records for
the wells drilled in the state since it started. It keeps track of
production, voidage and pressure of reservoirs. It sets up all of
the rules for production at Prudhoe Bay, the production limits that
provide maximum recovery from the resource. The AOGCC also
provides for the inspection of rigs from a conservation and safety
standpoint on the North Slope. It inspects on the Slope 24 hours a
day, seven days a week, checking drilling rigs to make sure they
meet safety requirements. It does surface and subsurface
inspections on safety valves and a secondary blowout prevention
system. He added that Alaska has a very good position and
excellent record regarding the amount of wells drilled and the
amount of blowouts that have happened with five gas blowouts in the
total time drilling has occurred in Alaska and no fluids on the
tundra. It believes the current systems are working.
With the current budget problems, the Commission has been forced to
give inadequate attention to things like reservoir management and
inspections for proper compliance. The budget mechanism is very
important. The current system is set up on a declining scale so
AOGCC gets less and less money as production goes down but, more
importantly, it does not represent the AOGCC's workload. The wells
in the fields last 20-25 years and the Commission conducts numerous
operations on them from the time they are spudded until they are
closed out and abandoned.
CHAIRMAN HALFORD asked him what his plan was for the month of June
if they didn't get a supplemental passed.
COMMISSIONER CHRISTENSON said the plan was to be the least
interruptive as possible to the total scheme. The inspection team
is on a three-week schedule and accumulates overtime and actually
trades it in for comp time. Because they are on that schedule, the
AOGCC will have to make sure it doesn't have an overtime cost
impact on June 1. They will change their schedules on the Slope.
On June 4, the three commissioners, the three professional
engineers, and the four inspectors will be put on leave without pay
status. One lady is on maternity leave. They will continue to
receive production reports and do the data gathering and those
kinds of things. The effect is that no new work will be going on
from June 4 until July 1.
CHAIRMAN HALFORD asked what the plan for the roof is and who is
responsible for it.
COMMISSIONER CHRISTENSON answered that they hadn't found anyone who
would take responsibility for it and the AOGCC's budget doesn't
cover any maintenance.
CHAIRMAN HALFORD asked if they had money, would they get to spend
it or would DOT take it and then give it to the Commission to
spend.
COMMISSIONER CHRISTENSON said DOT would take if first and then give
it back.
Number 420
SENATOR PEARCE commented that the building is in a part of
Anchorage that is unsafe at night according to staff and
commissioners.
CHAIRMAN HALFORD asked if the AOGCC would move its offices to
another location if it had the financial resources.
COMMISSIONER CHRISTENSON said it would and that the State needs to
make a decision about that building, because it is old and needs a
lot of work. It doesn't meet any OSHA requirements for ventilation
and the boilers were basically condemned in 1996. He thought a
downtown location would be better.
CHAIRMAN HALFORD asked in terms of AOGCC's workload, what Mr.
Christenson thought about the BP/ARCO merger.
COMMISSIONER CHRISTENSON replied there is little doubt that all
State oversight agencies on oil and gas have benefited from the
fact that the large operators have been paying very close attention
to what the others are doing. He thought the State would have to
expand its vigilance to watching these activities. He saw an
addition to the inspection force and another engineer. He said the
driving force behind the merger is to reduce the production costs
up there.
CHAIRMAN HALFORD asked if $2.3 million was enough to do that
annually.
COMMISSIONER CHRISTENSON answered there would be an additional
requirement for more inspectors and engineers. They would also
need contractual money to hire people with specific expertise.
CHAIRMAN HALFORD asked if this mechanism is flexible enough to
generate the revenue needed if they get the program receipt
authority in the budget document.
COMMISSIONER CHRISTENSON said it is.
Number 535
SENATOR MAKCIE moved to pass CSSB 134(Res) with individual
recommendations. There were no objections and it was so ordered.
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