Legislature(1993 - 1994)
04/12/1994 09:05 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
CS FOR HOUSE BILL NO. 199(O&G) am:
An Act relating to the exploration and production of
oil and gas and related hydrocarbons, to oil and gas
exploration licenses, and to oil and gas leases in
certain areas of the state; and providing for an
effective date.
Co-chair Pearce announced that HB 199 was before the
committee. She invited Jim Eason, Director, Division of Oil
and Gas, Department of Natural Resources, and Ken Boyd,
Deputy Director, Division of Oil & Gas, Department of
Natural Resources, to join the members at the table.
Senator Kerttula MOVED amendment 1. Co-chair Pearce
OBJECTED for discussion purposes. Senator Kerttula WITHDREW
amendment 1 because it contained a drafting error.
Senator Kerttula MOVED amendment 2. Co-chair Pearce
OBJECTED for discussion purposes and asked Ken Boyd to
comment.
KEN BOYD said that amendment 2 was a policy call of the
legislature. As a practical matter, the Commissioner was
hired by the Governor, and, potential lease/sale programs
were reviewed in discussions and cabinet meetings. He felt
that amendment 2 would slow the process but again reiterated
it was a legislative policy call. Senator Kerttula felt
that important things could occur without enough input from
the Governor.
Discussion was had by Senators Kelly, Sharp, Kerttula, and
Rieger regarding the implication of amendment 2. Senator
Salo commented that the intent would be that the Governor
would be another approval rather than another person to
lobby.
Mr. Boyd reminded the committee that the entire best
interest finding and public process was a part of the
legislation and believed a large part of the public process
would have taken place before this point. Senator Kelly
felt that there would be more exploration licensing without
the amendment.
Co-chair Frank said that SB 310 had a provision asking for
the Attorney General for sign-off. He suggested that the
Attorney General could give a second look at approval. Mr.
Boyd was opposed to adding another formalized step in the
process. After more discussion with Co-chair Frank, Mr.
Boyd reiterated his position.
End SFC-93 #67, Side 2
Begin SFC-93 #69, Side 1
Co-chair Kerttula MOVED a conceptual amendment to amendment
2 as suggested by Co-chair Frank by changing the words
"approved by the governor" to "review by Attorney General in
writing 30 days of time received". Senator Rieger OBJECTED
saying he felt it was not a matter of legal discretion but
was more a policy call. Discussion followed by Senator
Kerttula and Co-chair Pearce regarding exploration
decisions.
Co-chair Pearce called for a show of hands and the motion
amending amendment 2 FAILED. Senator Kerttula WITHDREW
amendment 2.
Senator Sharp MOVED amendment 3. Senator Kelly OBJECTED.
Senator Sharp felt that a 20,000 acre threshold was too
severe, that being twice the size of the largest state lease
currently available for exploration and four times the
standard federal lease size. He went on to list reasons to
reduce the size to 10,000 acres.
Mr. Boyd understood the concern of Senator Sharp that the
"little guy" would be able to play and felt that had been
addressed throughout HB 199. He also felt that 10,000 acres
in a remote acre was not reasonable. Even though he had no
objection, he pointed out 10,000 acres would be quite
limiting for this program. Senator Sharp noted that the
source of fuel for Barrow was on an even smaller piece of
land. Mr. Boyd said that in the beginning a much larger
area must have been explored before the area under
development was confined to that small of an area which was
characteristic of most developments.
At this time Co-chair Pearce asked the committee to adopt
the new version before them. Senator Sharp MOVED for
adoption of SCSCSHB 199(FIN) version "Q". Hearing no
objection, it was ADOPTED.
Senator Sharp again MOVED amendment 3. Hearing no further
objection, it was ADOPTED for incorporation within the
Finance Committee Substitute for the bill.
Senator Kerttula MOVED amendment 4. Co-chair Pearce asked
for clarification of amendment 4. Mr. Boyd said that the 5
percent statute, other than the royalty provisions, was
added to the laws in 1959. In 1964, it was repeated but
renumbered. In 1967, the provision on page 9, line 12
beginning "In unproven areas..." was added to law and that
became the basis for the discovery loyalty provisions which
were used for awhile but later removed from law. Mr. Boyd
said he had no objection to deleting that section.
Co-chair Frank asked Mr. Boyd to restate that he did not
object to amendment 4.
JIM EASON said he did not recall the exact time of the
repeal, but for a number of years, discovery royalty
provisions were in the statutes and a number of wells did
qualify for discovery royalty. The most recent incident of
a qualifying discovery royalty lease was the discovery well
for Point McIntyre. It was an old lease, had the discovery
royalty provision, and allowed a reduction in royalty to 5
percent for the first ten years beginning at the time of the
certification of eligibility. In most cases, the discovery
royalty period was considerable less than 10 years.
In answer to Co-chair Pearce, Mr. Eason said this new law
would have no effect on existing leases. In answer to Co-
chair Frank, Mr. Eason confirmed that the department did not
oppose amendment 4 and viewed it as a policy call.
No further objection being heard, amendment 4 was ADOPTED.
Senator Kelly MOVED amendment 5 which deleted the words "in
an amount determined by the commissioner, not to exceed" and
insertion of the word "of" on page 4, line 23 and 24. Mr.
Boyd felt there would be no objection to amendment 5.
Hearing no objection, amendment 5 was ADOPTED.
In answer to Co-chair Frank, Mr. Boyd said the geology and
proposed work commitment would determine the size of acreage
granted to prospective licensee. In answer to Co-chair
Frank, Mr. Boyd felt that science determined and preferred
not to limit artificially the input and consideration that
the Commissioner and Division might have in reaching its
decision regarding acreage.
Senator Rieger MOVED amendment 6. Co-chair Pearce OBJECTED
for discussion purposes. Senator Rieger spoke to the
amendment. No further objection being heard, amendment 6
was ADOPTED.
Senator Rieger asked for an explanation of language on page
5, lines 24 through 26. Mr. Boyd said that if less than 25
percent of the work commitment was done, the license was
lost. If more than 50 percent of work commitment was done
by the fourth year, there was no relinquishment of land. If
between 26 and 49 percent of the work was completed, 25
percent of the acreage, but no more than 50 percent, would
be relinquished. He agreed that if no work had been done by
the fourth year, the license would be relinquished. If the
company did not outline what property it wanted to
relinquish, the Commissioner would decide. He pointed out
that if the work was not done, a lease could not be issued.
He also said that if work ceased, the bond would be
continually increased. Senator Sharp pointed out that the
company could lose everything if the work was not done by
the tenth year.
Senator Kerttula read from a statement by Donald Harris,
"the major oil companies decide the direction of this
legislation. (Senator Kerttula commented that Mr. Harris
was worried Alaska was treating its oil and gas like Mexico
did and it could become a concession causing much conflict.)
HB 199 effectively created the ability for the state to
allow concessions regarding oil and gas leasing. The
history of concessions is the monetary rape of the state and
its resources and lands. This has been overcome in the
past. Most instances has been after the passage of
considerable time and blood shed. Initial awarding of
concessions should be done by competition, that is, through
competitive bids under HB 199. The actual production phase,
the original exploration tract granted, can be rolled into a
lease with as little as 5 percent royalty. In HB 199, this
is done at the Commissioner's discretion and frankly gives
too much discretionary authority for the values involved.
There are 10 hydro provinces with the possible of 2 million
acres for exploration, production, concessions. Under this
bill, tracts range from 20,000 acres (and now it's 10,000)
to 500,000, thus a few major oil companies could take up all
the valuable leases on state lands and waters and hold up
all state production including that in existing leases
citing economic concerns as the reason. Competition, to be
fair, should come into play at the time of leasing, not
later on. The rollover provision in HB 199 is especially
harmful because it effectively creates a concession. This
year, the summer of 1994, the state can know the boundaries
of all carbon and hydro-carbon deposits. This information,
in turn, could be marketed by the state in competitive
leasing basis. Knowing the boundaries of carbon and hydro-
carbon provinces creates large cost efficiencies for the
major oil producers because they don't have to pay to
conduct magnetic gravity seismic tests outside the province
boundaries. Knowing the boundaries could also eliminate the
disturbance on land and waters unnecessarily. HB 199 is a
dangerous piece of legislation because it creates the
potential for the greatest giveaway on public resource in
state history." Senator Kerttula said this statement was
given to him without his solicitation.
Co-chair Pearce remarked, that in the world scheme, in the
frontier areas (she included Alaska here), the leasing or
the licensing for oil and gas exploration was done by
exploration licenses. Perhaps Alaska was the only one that
did not use exploration licensing. All of those countries
and every country in North and South America, with the
exception of the United State and Canada, have oil and gas
reserves owned by the state or federal government. In every
one of those frontiers, exploration licensing was used very
successfully. She felt that Alaska would have to offer this
exploration license. Senator Kerttula said Alaska did not
have to compete with any warlike activities found in other
countries. Co-chair Pearce said that Britain had a very
stable country and exploration licenses was working in the
world.
Senator Rieger MOVED for passage of SCSCSHB 199(FIN) as
amended from committee with individual recommendations. No
objection being heard, it was REPORTED OUT of committee with
"individual recommendations," and a zero fiscal note for the
Department of Natural Resources. Co-chair Pearce and
Senators Rieger and Kelly signed "do pass." Co-chair Frank
and Senator Sharp signed "no recommendation." Senator
Kerttula signed "do not pass."
BILLS SCHEDULED BUT NOT HEARD:
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