Legislature(2003 - 2004)
05/05/2003 03:34 PM Senate RES
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SB 185-ROYALTY REDUCTION ON CERTAIN OIL/TAX CRED
CHAIR OGAN asked Mr. Gary Carlson to testify.
MR. GARY CARLSON, Senior Vice President of Forest Oil
Corporation, a major investor in Cook Inlet over the past five
years, read the following testimony.
My testimony on SB 185 will focus on the maintenance
of critical and scarce infrastructure associated with
mature oil fields in the Cook Inlet. The platforms,
associated pipelines, and related onshore facilities
represent irreplaceable infrastructure, which may
facilitate the exploration, discovery and development
of as yet undiscovered reserves if their useful lives
could be extended. Any delay in abandoning or
decommissioning of this infrastructure will provide
opportunities to the industry to develop smaller scale
oil and gas prospects that won't stand the economics
if new infrastructure needs to be developed. As the
mature fields approach the economic life, the
operators need to get creative and manage costs
carefully, which includes changing the way they
operate. They need the cooperation of their vendors
and contractors to share these efforts. I believe it
is appropriate for the state to step in as a partner
also. This bill provides a way for the state to make a
difference.
Keeping the Cook Inlet oil fields on line a few more
years will maintain good jobs, provide local taxes,
and the possibility of new development that could
easily exceed any anticipated shortfall in the state
revenues resulting from reducing the state's royalty.
I want to commend the bill sponsors and the Department
of Natural Resources for their foresight in supporting
this bill and I want to thank the committee for their
opportunity to provide this testimony on this
legislation. Thank you.
SENATOR WAGONER said he campaigned on this issue. He asked Mr.
Carlson to expand on what losing the platforms could mean to the
economy.
MR. CARLSON said as an independent explorer in Cook Inlet,
Forest Oil looked at all of the infrastructure there and found
it is critical to developing any new prospects to be able to
access that infrastructure. The mood of the operators in Cook
Inlet has changed; there is now cooperation among competitors.
Keeping the pipelines available and providing access to onshore
and offshore facilities is critical for some of the small
projects.
CHAIR OGAN asked Mr. Carlson if he is familiar with the areas
[named in Section 1 of the bill] in which the royalty reduction
will be allowed: Dolly, Grayling, King Salmon, Steelhead, and
Monopod.
MR. CARLSON said he is.
CHAIR OGAN asked if the royalty reduction will take place if
[production] drops below 1200.
MR. CARLSON said that is correct.
CHAIR OGAN asked Mr. Carlson if he is aware of the current
production levels of those wells.
MR. CARLSON said he is not but he would guess the well closest
to 1200 is Steelhead and that the range goes up to 4,000 or
5,000 barrels per day.
CHAIR OGAN asked which platforms Forest Oil owns an interest in.
MR. CARLSON said Forest Oil has an interest in the Steelhead,
Dolly Varden, King Salmon, Grayling, and Monopod platforms.
CHAIR OGAN asked if Forest Oil has a sole or joint interest.
MR. CARLSON said Unocal is the operator and majority owner and
Forest Oil owns approximately 47 percent of those facilities.
CHAIR OGAN asked how many platforms in Cook Inlet this
legislation does not apply to.
MR. CARLSON said five other platforms and one small onshore
field are not under secondary recovery. The operating costs are
not as high.
CHAIR OGAN asked Mr. Myers to provide the committee with a map
of the leases in Cook Inlet.
MR. MYERS agreed to do so.
SENATOR LINCOLN noted the sponsor statement says the intent of
SB 185 is to encourage production in the marginal fields. She
asked Mr. Carlson if he believes the legislation will do that.
MR. CARLSON said he thinks it could encourage putting off
decommissioning those facilities for one to three years,
depending upon the decline rate of the field itself, until they
are uneconomical to operate. As an independent operator, it is
critical to Forest Oil that the infrastructure remains. The
development of one new field would far offset any small
reduction in royalty to the state.
SENATOR LINCOLN asked what percent of Forest Oil's hire is out-
of-state.
MR. CARLSON said all Forest Oil employees are residents.
SENATOR WAGONER added that Union Oil has very few, if any, out-
of-state employees that work in Cook Inlet.
CHAIR OGAN thanked all participants and recessed the meeting to
the call of the chair at 5:37 p.m.
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