Legislature(1993 - 1994)
01/31/1994 05:00 PM House O&G
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 199 - OIL & GAS EXPLORATION LICENSES/LEASES CHAIRMAN GREEN stated he would like to take up HB 199, a companion bill to SB 151, in that it is a bill having to do with large block leasing. Number 246 JACK CHENOWETH, LEGISLATIVE LEGAL COUNSEL, LEGISLATIVE AFFAIRS AGENCY, stated he was the drafting attorney assigned to HB 199. He stated there have been a number of drafts of HB 199 for the committee in the months since the first session culminating in the draft marked "1012\I" in the upper right hand corner. He said this was the version that he would testify to the committee about. MR. CHENOWETH said HB 199 deals with authorizing oil and gas exploration licensing. He said that section one gives the DNR commissioner the latitude to grant extensions of time, as under current statute, for payments due on leases and sales of state land, minerals, or materials and also to cover any exploration licenses that are issued under the authority given to him in HB 199. He said section two sets out a new process for oil and gas exploration licensing. Subsection (a) of AS 38.05.131 beginning at page two, is unchanged from earlier drafts of the bill and essentially says what other provisions of the Alaska Lands Act say that apply to the oil and gas exploration licensing process. He said subsection (b) of AS 38.05.131 puts certain lands off limits, essentially land north of the Umiat Baseline of the North Slope of Alaska and the areas in the Cook Inlet Basin. Subsection (c) of AS 38.05.131 directs the DNR commissioner to undertake preliminary written determinations of nonexcluded land that is subject to oil and gas exploration licensing, and to give notice along the lines provided in AS 38.05.945 (b) for the public to have an opportunity to comment on the DNR commissioner's selections. He said subsection (d) of AS 38.05.131 gives the commissioner authority to adopt regulations. MR. CHENOWETH said the licensing process, and its limitations, are set out in AS 38.05.132. He referred to page three at lines 12 through 14, which indicates that the purpose is to encourage exploration for oil and gas on state land. He said subsection (b) of AS 38.05.132 describes what is required in the licensing process and sets limitation on licensing. He stated exploration licensing gives the licensee the right to explore for a term not to exceed 10 years for deposits of oil and gas on unleased state land and the right to convert a license for the land that has been explored into an oil and gas lease. He stated subsection (c) of AS 38.05.132 sets limitations in terms of acreage. He said exploration licensing is not subject to acreage limitations that are imposed otherwise in the Alaska Land Act. He said the specific limitations are that the licensing area be not less than 20,000 or more than 500,000 acres. There is a requirement that the licensee commit to performing a specific work commitment. He said work commitment must be translated in terms of dollars of direct exploration expenditure and the obligation on the licensee is to complete at least 25 percent of the licensee's total specified work commitment, not later than the fourth anniversary date of the issuance of that license. He said in other words, the licensee has four years in which to show that it has expended dollars equal to at least twenty five percent of the total specified work commitment, as outlined in the original license. He said that the licensee in paragraph (4) of AS 38.05.132 is obliged to post a bond or other security subject to annual renewal. MR.CHENOWETH said that page four, line 10 indicates how the bond is to be determined and adjusted as years pass and as work is performed. He stated the direct exploration expenditures that the licensee makes, count toward the reduction in the amount of the security or bond the licensee is obliged to keep in place. In other words, the bond is posted for the full amount at the outset. As the licensee performs work, those amounts that can be determined to be direct exploration expenditures tied to the total specific work commitment are subtracted and the bond or security is recomputed by dividing by the remaining period of years of the license period, so there should be a reducing security obligation over the period of the license. He said under paragraph (5) of AS 38.05.132, the commissioner is to review the bond or security and revoke the license if it is not maintained. MR. CHENOWETH continued that paragraph (6) of AS 38.05.132 indicates there is to be a license fee charge as determined by the commissioner. He said it sets an upward ceiling of one dollar for each acre of land, or fraction of the acre of land, that is encompassed in the exploration license. He said under paragraph (7) of AS 38.05.132, the licensee is conditioned upon agreement that the exploration expenditures are subject to audit. He referred to his earlier statement about the necessity of completing certain work by the fourth anniversary date. He said section (d) of AS 38.05.132 indicates what happens as a consequence of not completing or meeting that obligation. He stated if the licensee has not completed 25 percent of the total work commitment specified by that date, the exploration license terminates on that fourth anniversary date. He said if the licensee has completed at least 25 percent, but has not reached 50 percent, the commissioner is authorized to remove or delete or require the licensee to relinquish portions of the exploration license and terminate the licensee's rights in the areas that are relinquished or deleted. He referred to licensees that are between the 25 and 50 percent work commitment completion. He stated the measure by which the deletion or relinquishment occurs is referred to in sections (A), (B), and (C) of AS 38.05.132. He said that 25 percent must be relinquished as of the fourth anniversary date and then an additional ten percent at each subsequent anniversary date until up to an additional 50 percent of the original license area has been relinquished. In other words, it is a sliding scale intending to encourage licensees to keep exploring and is to the licensee's benefit to get work done earlier rather than to sit on the license and perform little or no work on it for the ten years that the licensee's have it. He said subsection (e) of AS 38.05.132 refers to the revocation in the event the licensee fails to maintain the bond or security in place. He said subsection (f) of AS 38.05.132 offers definitions for the two key terms of HB 199, the work commitment and the manner of computation of direct exploration expenditure. MR. CHENOWETH referred to AS 38.05.133 as procedural. He said it refers to what the DNR commissioners are to do as the licensing process gets underway. He said the licensing process is to be initiated when the DNR commissioner, or a prospective licensee submits to the DNR commissioner a proposal which identifies specific areas that are open to exploration licensing, proposes specific work commitments, and states the minimum qualifications of the licensee, identified in regulations. He said perspective licensees may initiate proposals only in response to a call for proposals by the DNR commissioner or during a period specified in regulations adopted by the DNR commissioner. He said the regulations must provide for at least one period for that purpose during each calendar year. In other words, the DNR commissioner has a key role in the timing and offering of the opportunity to engage in exploration licensing. He said it is not something that the DNR commissioner would necessarily have to respond to on the part of prospective exploration licensees until the commissioner and DNR are ready to enter into that situation. He stated the DNR commissioner is to give notice and must act on proposals he receives within 30 days. He said under subsection (e) of AS 38.05.132, the DNR commissioner may ask for additional information on a proposal submitted by a prospective licensee. He said the DNR commissioner shall issue written findings addressing the matters set out in the relevant provisions of AS 38.05.035 (e) and (g) and then if the commissioner finds the state's best interest would be served by issuing a license, his finding must indicate that. He said if only one proposal is submitted the commissioner must identify the perspective licensee whom the commissioner believes should be issued the exploration license. He said there is a provision in AS 38.05.035 (g) that refers to the submission of one proposal being submitted by one perspective licensee and what happens in those cases, what the commissioner is required to do in the event competing proposals are submitted, and how it is to be handled from that point on AS 38.05.035(h). He said there are provisions covering conversion of licenses to leases in AS 38.05.134. He said certain provisions for which the earlier sections of HB 199 exempt other parts of the Alaska Lands Act are enumerated in the lease conversion provision. He said there is a requirement of a royalty of not less than 12.5 percent of production and an annual rent of three dollars per acre or fraction of an acre, and any other conditions or obligations the commissioner is prepared to specify in the lease. He said section three makes a change that picks up the additional four sections, AS 38.05.131 - 134, with an additional cross-reference to them in AS 38.05.135 (a). He said that section four, apart from the reworking of the land to be leased, brings in reference to land that is subject to an oil and gas exploration license being accepted from a leasing program that the DNR commissioner is authorized to enter into under AS 38.05.180 (d). He stated in section five, covering land to be leased to the highest responsible bidder, there is an exception made for land under license to be converted to lease. He said that section six refers to notice requirements in AS 38.05.945 (a) being applicable to licensing and leasing under AS 38.04.132 - 134. He said that section seven's reference to the additional excluded area is a temporary provision intended to cover land already picked up in three of the competitive lease sales; 80, 87, and 88. He said his recollection was that the exclusion will come to an end and at some point that land could be open to exploration licensing. He said section eight gives the DNR commissioner advance authority to prepare regulations to cover the licensing program. In other words, the commissioner is given a head start on adopting regulations to implement the licensing program before the effective date and only that section is given an immediate effective date. He stated the remainder of the bill has a 90 day effective date. He indicated this was the same approach used in SB 151. Number 470 REPRESENTATIVE SITTON asked if the bonding provision is prohibitive to small operators or small companies. He also asked how hard is it to get a bond and are bonds readily available. CHAIRMAN GREEN said, in his experience unfortunately, the smaller the operator, the more costly the bond. He said from his standpoint, exploration in Alaska is extremely expensive. He said exploration in Alaska is not something that is necessarily conducive to the small operator. He stated there are some possibilities of making a special dispensation to a smaller operation. He said it seemed to him that if an independent operator in North Texas or Oklahoma, for example, tried to operate in Alaska, it would be on a peripheral basis, around existing oil fields, somewhat like what the independents do in the contiguous United States. He said HB 199 is geared towards unknown areas. He said there are several basins in the state with little to no exploration having been done. He said it is going to take an operator with a significant sum of money because even if there is a discovery, the operator has to get it from the well back to the market. Number 510 REPRESENTATIVE SITTON stated he wanted to follow up with a friendly question. He wanted to know what purpose the bonding provision served given the conditions that Chairman Green had just described, and given the provisions on relinquishment. KEN BOYD stated the purpose of the bonding goes back to establishing the work commitment. He said the state has to have some protection, so it gets companies that are bidding a reasonable, responsible amount. For example, a company could come in and bid any amount of work at any level when it is clearly incapable of doing that kind of work. He said as part of the total package, the bonding formula doesn't require companies to have an enormous amount of money in any given year, yet still protects that state. He stated, without the bonding provision, HB 199 falls apart. Number 555 REPRESENTATIVE SITTON asked why the state couldn't tighten up on the relinquishment side and have the same guarantees. Number 560 CHAIRMAN GREEN indicated he did not understand the question, since there is a relinquishment in HB 199. Number 562 REPRESENTATIVE SITTON stated that both relinquishment and bonding serve a dual purpose. He said both are aimed at guaranteeing that the company live up to its side of the deal. In response to Mr. Boyd's comments on bonding and the reasoning for it, he speculated that it might be possible to tighten up on the relinquishment part of the proposal and achieve the same purpose. Number 574 CHAIRMAN GREEN stated he thought that one of the main reasons for the bonding is there has to be some accountability for the bids. He said another reason is if there is not a cash requirement, the process might be opened up to speculation. For example, an operator might come to Alaska from Texas and tie up 500,000 acres on a bogus bid and then try to peddle it to another operator. He said in the past, this procedure has been quite lucrative to some people. He said that securing acreage, and then building what is called "a play" to peddle to another company with a lot of money. He said the concept is that the state doesn't want to be in the business of allowing an operator to lock up a large parcel of land for a ten year period and be out speculating with that large parcel of land. Number 600 REPRESENTATIVE SITTON asked Chairman Green if such speculation has taken place in Alaska. Number 602 CHAIRMAN GREEN stated yes. He said there used to be a situation called "over-the-counter type" leasing. He said it led to speculation and was fairly popular in the Cook Inlet area on much smaller areas. Number 607 REPRESENTATIVE DAVIS said, in reference to Representative Sitton's question, that has been a concern for him. He stated one thing that clarified it in his mind was the situation in the state of Alaska with who owns the land. He said it is largely state and federally owned land, where independents primarily work on private land. He said that fact in Alaska limits the operation of small independents anyway. He said he shared Representative Sitton's concern, but he did not see any options. He said he knows there were discussions during the interim and that was one the issues that was hashed out in detail. He said he also knows from reading the literature, that one apparently independent in Representative Sitton's area is still concerned about the provision. Number 638 CHAIRMAN GREEN stated there are a couple of independents in the Anchorage area who are also affected, perhaps restricted, by this. He maintained that somebody with a limited funding, in the context of less than millions of dollars of ready cash, perhaps should not be involved in something of that magnitude. He stressed it is a way to evaluate state land that doesn't lend itself to be evaluated under the current leasing program. He stated there are competitive leases that HB 199 will not affect in any way. He said HB 199 does not exclude anybody from bidding on the more conventional lease sales. Number 671 REPRESENTATIVE SITTON stated that short of Alaskans achieving something in the bonding world equivalent to the notion of universal access health care, he supposed that Alaskans would have to live with it. Number 681 REPRESENTATIVE DAVIS stated that Representative Sitton was correct about universal access. He said as a small excavating contractor he could not get a bond for a million dollar project to be competitive with larger companies. He stated there is definitely some lack of universal access. Number 694 CHAIRMAN GREEN stated he thought that Mr. Boyd made a good opening comment when he said that HB 199 as it is now, may be acceptable to most all of the players, but it certainly is not what each one of them individually would like. Number 707 REPRESENTATIVE SITTON referred to page six, lines 26 and 27. He stated he was familiar with the mechanism for the establishment of regulations and that his familiarity leads him to be a little weary of saying outright that the DNR commissioner will establish minimum qualifications for the licensee. He hopes the legislature was not encouraging the Executive Branch to get into more law making than it is already doing. Number 733 KEN BOYD said the intention of that provision is to keep the eligibility for the program the same as it is for the state's five year schedule, which is that a qualified applicant is "...a natural person who is at least 18 years of age, a corporation"... TAPE 94-4, SIDE A Number 001 KEN BOYD said the program is open to all. Number 003 REPRESENTATIVE SITTON said an open program was good and he was glad to have it on the record that the state intends to do that. CHAIRMAN GREEN stated he would like to have a motion to adopt the Committee Substitute for HB 199 so the committee can be acting on the current version. Number 008 REPRESENTATIVE DAVIS made the motion. There was no objection. Number 011 CLIFF BURGLIN, testified via teleconference from Fairbanks, there are no perimeters or numbers in HB 199. He said he noticed two numbers ($5,000,000 and $50,000,000) that the state was going to give to oil companies for work they may or may not do. He stated one of the things the legislature is doing is trying to figure out how to make ends meet. He asked how the state could make ends meet by making large oil companies the state's favorite charity. He said he wanted to correct the legislator who said there are no or very few independents on state or federal land in other states. He said there are thousands of independents who drill wells on federal and state lands in every other state, and there are ways for them to obtain leases. He stated the highest bonding that he knows of for any state is $20,000. He also wanted to make another clarification. He said that independents have drilled wells in the state of Alaska. He then addressed his comments to Representative Sitton saying he could not believe that Representative Sitton could tell him that he thoroughly understands HB 199, and he didn't believe any other legislator could either. He stated he could not believe the public has not had a chance to look at the bill. He stated he sent some legislators testimony for the hearing, but the only people who have been meeting on HB 199 are the oil companies and some people from DNR. He stated HB 199 will tie up potentially all of the land in the state, including the surface rights. MR. BURGLIN also addressed the proposed preliminary report on the settlement of the Mental Health Trust Lands litigation. He said it seemed to him as he read through the report that unless the state steals the land, they have a right to select land before either HB 199 or SB 151 go through. He said he wanted to know how the legislature is going to satisfy the Mental Health Trust. He said he knew that the trust is not favorable towards HB 199 or SB 151, and if the trust has any kind of legal representation, they will be "jumping all over you legislators before they let you pass this bill or anything like it." He asked why there was no publicity on the bill since it is going to affect the pocketbooks of every Alaskan. He said it appeared to him the money was going to go from Alaskans' pocketbooks to multinational oil companies' pocketbooks, who by their own admission, are cutting back, destroying jobs, and leaving the state. He asked how legislators could push the legislation through without telling people what it means. He said it is Alaskans' money the legislature is giving away with SB 151. He indicated that the legislators were trying to bribe the oil companies to come back, but they are leaving. He stated if the oil companies did not want to stay, the legislature should let them go and let others come in. He referred to the bonding provision of HB 199 and said the big oil companies have their own security, so they don't have to put up a bond. He said even if an oil company did have to put up a $20 million bond and then did something wrong, the company would tell the state to sue it. He asked which commissioner the legislature would let distribute the land. He asked who would monitor the commissioner against special interests and cronies. He asked if the legislature would set up safeguards in HB 199 or would it trust the DNR commissioner to take care of everything in the right way. He asked again who would watch the commissioner. Number 130 CHAIRMAN GREEN indicated that he would attempt to answer some of Mr. Burglin's questions. He referenced Mr. Burglin's comments about the $5,000,000 to $50,000,000 credits. He thought that Mr. Burglin was referring to SB 151, and SB 151 was no longer before the committee. He said he did not believe there were no independents in other states. He said the committee was aware of hundreds of independents in the other states. He referred to Mr. Burglin's comments on the lack of publicity on the bill and informed him that meetings were held during the first session of the 18th Legislature, and the committee had held a special interim meeting. He referred to Mr. Burglin's reference to the Mental Health Trust Lands and stated it is another issue. He concurred with Mr. Burglin, there may be some difficulties once that issue has been settled. He acknowledged that companies are leaving Alaska, and have been for several years. He said the legislation was an attempt to try and entice companies to stay and perhaps bring back some companies that have left. He referred to Mr. Burglin's indication that he is a co-owner in several wells in Alaska. He said he thought that was probably the answer for independents, to group together. Number 161 MR. BURGLIN indicated he did try to testify on SB 151, but it was heard so quickly he did not have a chance. He asked how Chairman Green could say the public had an adequate chance to testify on these bills when he just got one of the final working drafts 25 minutes ago. He disagreed with Chairman Green vehemently that the bills have received the publicity they deserve. He stated that with the potentially adverse effects the bills could have on Alaskans, he did not believe there was any legislator that understood what the bills were about. He stated he would be happy to go to Juneau to discuss the bills with anyone that thought they could explain it to him. CHAIRMAN GREEN offered his personal invitation to Mr. Burglin to come to Juneau to discuss the bill with him. He said it was not his intention to pass the bill out of committee, it was his intention to keep the committee substitute in committee, study it, and then come back and pass it out. Number 185 MR. BURGLIN indicated he would like to have some written answers to some of the questions that he had raised. Number 187 CHAIRMAN GREEN said if he would submit the questions in writing, the committee would respond. Number 188 MR. BURGLIN indicated he already had submitted questions. Number 189 CHAIRMAN GREEN asked to whom he submitted the questions. Number 190 MR. BURGLIN responded that he had submitted questions to the committee and he would fax his questions to Chairman Green's office. Number 199 CHAIRMAN GREEN adjourned the meeting at 6:06 p.m.
| Document Name | Date/Time | Subjects |
|---|