Legislature(2003 - 2004)
05/16/2003 03:35 PM Senate RES
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* first hearing in first committee of referral
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SB 172-LIMIT ON OIL & GAS LEASE ACREAGE
CHAIR OGAN informed members that he does not intend to pass this
legislation from committee today because similar legislation in
the other body is further along in the process.
MR. MARK MYERS, Director of the Division of Oil and Gas,
Department of Natural Resources (DNR), explained to members the
committee substitute (CS) does two things. It increases the
amount of acreage an individual company can hold, on [tidal
areas] and onshore, from 500,000 to 750,000 acres. However, the
additional 250,000 acres can only be located south of the Umiak
baseline. He said the purpose of the increase is to allow
companies to acquire more acreage, particularly in Interior
basins, under licenses that could be converted to leases,
shallow gas leases or Cook Inlet areawide leases. DNR believes
the limit of 500,000 acres was originally adopted to prevent a
few companies from having total control of the North Slope, in
terms of exploration acreage. However, at the time that limit
was adopted, no one anticipated the large amount of interest in
the North Slope foothills, the exploration licensing program or
the shallow gas leasing program. With the advent of the
potential economics for gas and more interest in the Interior
basins, DNR believes it is appropriate to expand the acreage. It
is only expanded to the south of the traditional North Slope
area. Several companies are at or near their exploration limit.
He stated Conoco Phillips and Anadarko support SB 172, and he is
not aware of any solid opposition.
MR. MYERS explained that the second part of the bill will
improve internal efficiency within state government. That part
of the bill returns royalty audit authority from the Department
of Revenue (DOR) to the Department of Natural Resources (DNR).
That authority was changed in 1980. Oil and gas royalties were
done simultaneously; therefore it made sense to have the
auditors under one roof. With the advent of the royalty
settlements, and the differences in evolution of the lease form,
there are many differences between the way taxes and royalties
are now audited.
CHAIR OGAN asked Mr. Myers to review the transfer of audits.
MR. MYERS said that two auditor positions will move from DOR to
DNR, along with the authority. He explained that in 1980, the
legislature moved royalty authority from DNR to DOR for the sake
of efficiency, because tax and royalty audits were done at the
same time. However, a settlement followed, the lease forms have
evolved, and the audits have changed. Tax and royalty audits are
no longer simultaneous and the settlements are different so
different expertise is needed. Right now, four of the auditors
are located in DNR and two are located in DOR. Both DNR and DOR
have recognized this arrangement to be inefficient. This bill,
by moving the authority and transferring the money for the two
positions, will provide all of the authority in DNR. It will not
change the level of audit authority; it merely moves it to DNR.
CHAIR OGAN referred to language on line 6, page 3, and said the
fine for knowingly violating that section is up to $5,000 and/
or up to two years in prison. He asked if that is a class A
misdemeanor or a class C felony. He then noted the arrival of
Senator Seekins and Stevens.
MR. MYERS said that provision was already in the bill. It
basically says the auditors are bound by confidentiality and
that inappropriate release of confidential information means a
jail term. He said DNR believes that is appropriate because it
recognizes the sensitivity of the information. Companies need
assurance that information will not be made public.
CHAIR OGAN pointed out subsection (h) will be a new section of
statute. He said he will bring that provision to the attention
of the Senate Judiciary Committee chairman.
MR. KEVIN BANKS, Division of Oil and Gas, DNR, told members that
in giving the authority now held by DOR back to DNR, DNR will be
taking information from DOR obtained under AS 43. DOR
occasionally uses that information when evaluating audits; DNR
wishes to have that kind of information available when
conducting royalty audits. The language in Section 4 is lifted
from AS 43. It contains the penalties that exist if a DOR
auditor releases tax information. Since DNR believes it is
necessary to have access to that information and will be given
the authority to access it therefore the same penalties that
apply to DOR auditors should apply to DNR auditors.
CHAIR OGAN said he was questioning the classification of that
crime.
MR. BANKS said he believes that is a civil offense rather than a
criminal offense.
CHAIR OGAN disagreed because civil actions do not carry a jail
term. He then called an at-ease and, upon reconvening, announced
that he planned to hold the bill in committee and would check on
the classification of the crime.
SENATOR LINCOLN asked if four auditor positions exist now; two
in DNR and two in DOR, which will be transferred into DNR so no
new positions will be created.
MR. MYERS clarified that DNR has four positions and DOR has two.
The two positions in DOR would be transferred to DNR so there
will be no net gain in positions.
SENATOR LINCOLN asked where the positions to be transferred are
physically located.
MR. MYERS said they are both located in Anchorage.
SENATOR LINCOLN asked if DNR's new subpoena power will create an
imbalance of power within the industry because of the overall
concentration of power within DNR.
MR. MYERS said the subpoena powers would be identical to those
available to DOR. It is generally recognized that under the
auditing authority, subpoena powers are necessary.
CHAIR OGAN asked if that language is verbatim from Title 43.
MR. MYERS said it is and that it will create no increase of
power with the state.
MR. KEN BOYD, an oil and gas consultant, said he was speaking on
behalf of the Alaska Oil and Gas Association (AOGA), a trade
organization composed of 17 companies. AOGA supports CSSB
172(RES). AOGA recognizes the changes that have taken place over
the last couple of years. When he was the former director of the
Division of Oil and Gas, companies were not looking for gas in
the foothills. Now they are. Another change that has taken place
is exploration licensing. Licensed acreage is not chargeable
acreage but, when it is leased, it becomes chargeable. He
believes the division is trying to say that companies need the
flexibility to work in both places. He said the second part of
the bill, regarding audit reporting, merely moves two auditors
where the expertise is, within DNR.
SENATOR SEEKINS referred to the language on page 3, lines 7
through 10, and asked if he could subpoena a receptionist at BP
and ask her to bring the books and records, or whether this
language should apply to the books and records under an
employee's control and authority.
MR. MYERS pointed out the pertinent language is on line 9, which
reads, "bearing upon matters relating to an audit under this
section...." The records being subpoenaed would have to be
directly relevant.
SENATOR SEEKINS expressed concern that his shop manager could be
subpoenaed to bring financial records that he has no control
over. He suggested tightening up the language to refer to the
records under the control of the appropriate individual who can
answer to the information.
CHAIR OGAN said he believes that is boilerplate language from
another statute but that he would consider amending it.
SENATOR SEEKINS commented that he just hopes that DNR would
subpoena the appropriate people.
SENATOR LINCOLN asked Chair Ogan whether the House version of
this legislation is identical to CSSB 172(RES).
CHAIR OGAN said he was told the Umiak Meridian Baseline
provision was removed from the House version.
SENATOR SEEKINS asked the status of the House legislation.
CHAIR OGAN announced a brief at-ease. Upon reconvening, he told
members the CS to SB 172 is identical to another bill.
SENATOR WAGONER moved to adopt the proposed CSSB 172(RES),
Version D, as the working document of the committee.
CHAIR OGAN announced that without objection, Version D was
adopted. He then announced he would hold the bill in committee.
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