Legislature(1995 - 1996)
04/26/1996 08:10 AM House RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 548 - NORTHSTAR OIL & GAS LEASE PAYMENT CO-CHAIRMAN GREEN announced the committee would hear HB 548 and he asked Kevin Banks to come forward. Number 413 KEVIN R. BANKS, Petroleum Economist, Division of Oil and Gas, Department of Natural Resources stated that he would address previously requested sensitivities of DNR's Illustrative Northstar Model based on assumptions of higher production rates and high oil prices and a 25 percent savings in capital expenditures. Number 448 MR. BANKS said, "Table I is the base case. It is the numbers that we have been talking about and the relevant differences are that in the base case, we believe the proposal will produce $37 million in 1996 dollars in supplemental royalties versus in the case where the leases are not amended, development would be delayed until 2002. It is our intention, as a result, that the net profit shares would be valued at about $41,000,000." Number 492 MR. BANKS continued, "As you can see from Table II, changing some of the assumptions as you requested, all I did was increase the number of barrels without changing the peak production rate. So, it added about two years, or so, to the plateau of peak production. As you can see, there is a significant increase in net profit shares under that kind of scenario, and an increase in supplemental royalty associated with the increased volumes." Number 534 MR. BANKS referred to Tables III and IV illustrating similar kinds of results. MR. BANKS said, "To provide some kind of balance, I believe that it is only fair to look at the down side, as well. If production is not what we expect, the net profit share goes to zero. If the oil prices are not as high as we would hope, both the net profit share and the supplemental royalty fall to zero. Likewise, if capital expenditures increase by 25 percent, the net profit share basically evaporates." Number 584 MR. BANKS referred to graph provided by BP Exploration and stated that he believed that the cut off for net profit shares occurs if the capital expenditures are just 10 percent, or so, more than what they are estimating. MR. BANKS summarized, "There is a bigger impact on net profit share than on the supplemental royalty in the up side." Number 647 MR. BANKS recalled Representative Davies questions from the prior meeting and said, "I was focusing on late life capital investments but what he was really talking about was what happens at the end of field life without further investment. I believe, as an economist, that as long as there is some positive cash flow in the field, the field will go on producing. I realize that BP is probably looking at what the asset generates for the company, what contribution this asset, that they show on their balance sheet, contributes to the income of the company. They have to make a decision, I believe, that ... do we keep this asset or do we sell it? While, I believe that production would continue as long as there is a contribution to stockholder equity, in any form, they may come to the conclusion that it is an underperformer. They would off load the prospect to someone who could work with smaller margins." Number 727 MR. BANKS proceeded, "As I have indicated in my letter, we see this kind of thing happening in the Gulf of Mexico, as that basin has matured. On the other hand, and, I do add this caveat, the abandonment cost can go both ways. If a company, or a producer, recognizes that there is a fairly significant abandonment cost that is looming in their future. If they can postpone the abandonment cost, then the net present value of that cost has to be measured against what kind of income stream they can ... or the losses that they are going to have to incur, in the meantime. There could be some incentive to produce even beyond a positive cash flow after the cash flows fall to negative." Number 779 MR. BANKS further stated, "The state, however, has some say about how leases will be dismantled and assigned at the end of field life. I think, it would be in our interest to make sure that whoever acquires it, if this hypothetical occurs, has the means to dismantle and restore the leases to their original condition. That works the opposite way." Number 809 CO-CHAIRMAN GREEN thanked Mr. Brooks for his presentation and his immediate response to committee questions. Number 850 KEN BOYD, Director, Division of Oil and Gas, Department of Natural Resources, came to the table. CO-CHAIRMAN GREEN interrupted to confirm that Eric Luttrell was on the teleconference network from Anchorage. Number 863 ERIC LUTTRELL, Vice President Exploration, BP Exploration (Alaska) Inc., confirmed his presence assuring the chairman that he would not hear any groans. Number 879 CO-CHAIRMAN GREEN addressed Mr. Boyd reiterating Representative Davies question, .. "about what would happen on the abandonment and the clean up portion, and I really do appreciate Eric's indicating a likelihood of what might happen. Do you have any formal requirements that would pass to a subsequent owner?" Number 907 MR. BOYD said, "I do not believe so. I believe that what we have is the commissioner, or the director, has broad authority as to what will happen at the end of lease life and that policy has not changed to anything specific, yet. One of the things is that in trying to make decisions today, about abandonment 15 years from now, begs the question of what actually do we want to do. You think about Cook Inlet, this may be a frivolous example, take the platforms in Cook Inlet, could you make them into casinos or prisons? Do you really decide today to cut them to pieces and drag them out of here at some extreme cost? Is there some use for the facilities on the North Slope other than what they are used for now? So, the short answer to your question is, there is no specific policy but, again, there is a broad authority to do something at the end of its life." Number 957 CO-CHAIRMAN GREEN said, "For example, now we have drifted back on shore ... with all the road systems, and so on ... if there could be a beneficial use indicated, they would not necessarily require that all that gravel be put back in pits ... there may be benefits for the island at Northstar ... while the wells would be abandoned they may not need to remove the gravel?" Number 987 MR. BOYD stated, "That is correct, you have seen some of that already. I am no expert on this, but I know that there has been some gravel things that have been turned into fish habitat, for example. There are some beneficial uses, I think, even for caribou for insect relief. I, again, am not an expert on this, I just sort of know this anecdotally. Your case is the same." Number 1009 CO-CHAIRMAN GREEN recapitulated, "We have had, what I consider a very reasonable and well presented economic evaluation. Certainly, at least, as a summary, from my point of view, if there is a significant increase in the amount of oil, or the rate at which oil might be produced, or for the length of time that we might be able to produce the maximum, it would behoove the state, perhaps, to stay with the program as we have it now with the net profits rather than a supplemental royalty." CO-CHAIRMAN GREEN continued overview, "On the other hand, I think, the economic analysis has indicated that it could go the other way and the state would tend to lose under a situation like that. So, I think that then, that brings us to the point where we should have been all along, and it is not an easy decision, but I think it should be then to the purview of the commissioner of the Department of Natural Resources to ... whose staff is expert in this realm to determine how we throw the dice. Do we want to go for the big one? Do we want to take the safer, middle of the road, kind of ... hedge our bet or are we fearful that we may end up with a real poor situation and lose both ways?" Number 1085 CO-CHAIRMAN GREEN summarized, "So, it would be my recommendation from this committee then that we would accept the proposal as has been agreed to between the Department of Natural Resources and the operator. My concern now shifts to the fact that there has been statements, there have been verbal commitments that the operator would exercise, to the utmost, their desire to try and hire locally. I do not want to get into the wrong nomenclature, so that this could somehow be construed as going against the federal court. But, whether you call it Alaska hire, or people who live in this state would be hired as much as possible - that the construction of modules would be done in state. I think, that while the royalty aspect, the income stream, certainly is of critical nature to the state, I think the potential for being a staging area for the developing nations, Russia and the Pacific Rim, I think really bodes well. We will end up with a trained work force, technically capable and skillfully trained. I think that is equally important to this legislature." Number 1174 CO-CHAIRMAN GREEN said, "Having said all that, there is before you an amended version of this bill, version G. In essence, what this version does, it stays with the program that has been agreed to between the applicant and the department. However, it has expanded that contract or that bill that was originally introduced. HB 548 was fairly plain ... that was introduced on the 28th of March. This bill follows that format but adds in ... and I will review the portions that have been changed for your edification." Number 1224 CO-CHAIRMAN GREEN, "On page 2, line 14 through page 3, line 18. That has been instituted at the suggestion of some of the leadership of the House. Then, again, on page 3, lines 30 and 31 through page 4, line 23. In essence, what that does, it actually requires the applicant to make a good faith effort and it says that they will hire at least 85 percent (page 4, line 6) and they will construct all the necessary paraphernalia that would go with the development of Northstar within the state of Alaska. That, in essence, is what is required with no change to agreement itself." Number 1297 CO-CHAIRMAN WILLIAM K. "BILL" WILLIAMS moved to adopt CS HB 548, version `G,' as the working document. There were no objections. Number 1320 CO-CHAIRMAN WILLIAMS noted that the first part of Co-Chairman Green's amendments were in the findings area and said he had no question about that. He did have a question on page 4, "How will these areas be legally enforceable?" Number 1344 CO-CHAIRMAN GREEN commented that that was a very good question. "We have talked with the legal drafter and there is a `severability' that if there is challenge to this, as there may be, if there is challenge and it fails, only that portion of the challenge would change and the rest of the document would stay intact. So, that if, for example, 85 percent is held by federal court to be unconstitutional, for some reason, then the 85 percent would drop but there would still be the desire to hire as many locals as possible. If that wording were held unconstitutional, then it is just going to back off as much as would be held unconstitutional. There is, perhaps, even a chance that to require the applicant to construct their modules within the state. Maybe a restraint of trade that would not pass muster. But, I think, that too, would only be a severable portion of it and the rest of the contract would hold." Number 1408 CO-CHAIRMAN GREEN continued, "In essence, what this says is, `Go do your best,' and if there are individual challenges and lose, ...and that is not to say they would, just because of challenge, lose - at least, they would be severable and not the whole contract then (indisc.) would not fall." Number 1425 REPRESENTATIVE PETE KOTT concurred with the Chairman's comments. "In my opinion, I do not think that the section dealing with the 85 percent will hold in the court and make Section 3 a moot issue because there will be no reporting provision. If, in fact, I were wrong, and the 85 percent is held up which would then trigger the reporting provision. What would the commissioner of the Department of Labor do if, in fact, the report showed a 75 percent higher rate, instate? What is the ramifications of not meeting the threshold of 85 percent?" Number 1461 CO-CHAIRMAN GREEN said, "Well, that would be a condition that, assuming that that 85 percent passed muster, then they would be required to increase the number of local hire until it met 85 percent of their work force, for that project." Number 1478 REPRESENTATIVE KOTT said, "My question is, what would happen if they, ultimately, did not?" Number 1484 CO-CHAIRMAN GREEN replied, "I would think that would be a breach and they would be held accountable to either modify their work force or increase it to accomplish that. That is one of the reasons for the reporting requirement. So, that they can't get themselves into a position like that. As they develop their work force which would be a ramp up, that they would stay with Alaskans except for those few cases where there is no trained or trainable work force timely enough to accomplish what needs to be done." Number 1505 REPRESENTATIVE KOTT stated that he has no reason to believe that the 85 percent threshold will not be met. "I think we have enough qualified people in the state. I was just curious as to what the potential ramification would be if, in fact, for whatever reason, the 85 percent was not reached. The project, I would not ... they would just be stopped right in the middle. I am sure there would be some good faith effort to increase it, if possible. I am sure there would be some consideration, by the department, on the percentage." Number 1530 CO-CHAIRMAN GREEN responded, "I think you bring up a good point because there could be a `saw tooth effect' that during the period of adjustment to get it to an operational ... or even during construction, that might go above 85 percent, and drop below it. I think that is where we bring the Department of Labor involved to go along with that, `Whoops, applicant you are down to around 65 percent, you had better do something,' because it does provide for training, if necessary." Number 1551 REPRESENTATIVE DAVIES applauded the chairman's efforts to make the collateral benefit more tangible, but, "I am concerned that because of the kind of discussions that we have had, I guess I concur with the Representative from Eagle River that the constitutionality of this particular provision is problematic. My understanding is that these sorts of things can, sometimes, pass muster more easily if they are couched in the terms of incentives. I wondered if you have considered structuring something so that, depending upon the level of participation in Alaska hire, the supplemental royalty might change to provide an incentive?" Number 1603 CO-CHAIRMAN GREEN stated that he had not considered that. "I think that would have been a very good thing to discuss if this were February, or last year, and we would not be in a time constraint activity which if we don't do something then we have a whole interim period of time that may not be good. So, I think that brings up a very interesting point. If this were to pass this way then I would think that there would be a sudden movement between the various parties to the situation to address just what you are talking about. Maybe there is a better way. Or, they could be saying, `Hey, we know that will be unconstitutional.' I don't know that nor did the drafter of this. The legal expertise said, `Yes, 100 percent, we know won't work.' Eighty-five percent or any percent, we tried to find out ... does the possibility of it passing improve with the decreased minimum number of local hires. That is purely speculative, and I want to make sure that everybody knows what I found out that, `Hey, having any number in there may not pass muster. So, what you are suggesting is maybe, in order to keep that as high as possible, that if you do not do this, the royalty goes up. That too, may find because the court would ... I am talking way out of school here because I am not legally trained, but, I would think the court would look through that and say that, too, ties to local hire and that is what we are holding as an unconstitutional restraint (indisc.). It may have already been discussed, Representative Davies, I do not know. We were not privy to, almost, a year of negotiation that has been going on between the Department of Natural Resources and the applicant. I have no idea what all those things ... and this could certainly have been one. Were you involved in those negotiations, Ken, or was it the commissioner? I am sure they covered a wide swath of negotiations and that is duly noted on the record that may be an alternative to this. Unless, are you suggesting to offer that as an amendment to the amendment?" Number 1722 REPRESENTATIVE DAVIES, "In all due respect, Mr. Chairman, I got this at 8:00 o'clock last night, so I have not had a lot of time to think about it. I, certainly, do not have an amendment prepared. It would take some consideration to look at that. What I am thinking right now, this is different than the version that came to us from the other side in that there will be a requirement to ... Number 1751 CO-CHAIRMAN GREEN interjected, "Are you saying the Senate version? We do not have that yet. We have, kind of, been following it." Number 1761 REPRESENTATIVE DAVIES agreed that was correct, "I was just wondering if there might be some opportunity for a conference committee to have some further thought?" Number 1770 CO-CHAIRMAN GREEN said, "Well, there would certainly be, there, and this goes on to Finance and there would be a chance to do something like you are saying in Finance, or on the Floor, and this also has a referral to the World Trade Committee." REPRESENTATIVE DAVIS commented that the World Trade Committee has sort of global views ... Number 1788 REPRESENTATIVE ALAN AUSTERMAN recognized what Representative Davies was saying and his concern, "I, also, do not know how you would answer that question, and it has been a question throughout the state for many, many years. I am in favor of this draft and continuing on in trying to push it forward. I think every step that we take toward trying to solve, or answer, this question of local hire, and every time it is going to end up in the courts, whether we like it or not, that as long as we keep pursuing it and pounding it, at some point in time, we may come up with the answer that we are looking for. But, just to draw back and say that we feel it is unconstitutional and may not pass muster, does not get us there either. It is going to go to the courts and they are the ones who are going to end up making the determination if somebody takes it to court. I am in favor of pursuing this, at this stage of the game, and seeing if we can get an answer to it and come to some resolve as to whether it is building a new school, in one of the villages, or whether it is to drill for oil on the North Slope. It is an issue that we need to continue to pursue and try to get an answer to. It is how we put our people to work." Number 1852 REPRESENTATIVE KOTT appreciated what his colleague from Kodiak is saying but clarified that what Representative Davies was trying to get at was, "If there are potential constitutionality problems with this and this ends up in the court, it may delay the project from going forward. I, kind of, like the idea of some kind of incentive mechanism to reach the same goal of hiring 85 percent and whatever the numbers are that are maxed out in the proposal. I think that would, certainly, circumvent any potential court or litigation, in the future. I do not know how long litigation would occur if it ended up in court. I would certainly not want to prohibit this project from commencing, at the earliest possible time, to benefit all the state residents." Number 1886 CO-CHAIRMAN GREEN said, "Now, we are on a legal question. I would think that there is no way to know what the court might do. But, short of an injunction, it seems to me that the worst that could happen is that the project could continue, but that the court may strike down this saying, `While this is in litigation, because of prior cases, you are not going to be held to this.' If you want to continue operating, we are going to remove that restriction and you go ahead and build it the way you see. But, do not use that as any kind of, even an, legal opinion, let alone the court's decision. I think that as Representative Austerman says, `It is up in the air now,' and whether that would impact the development of this ... my feeling would be, that it would not. I think the state, in its best interest, would find that it is better to move along with the project and worry about this without it being held. If it turns on whether `85' is reasonable or if it turns on the fact that you can not put a number there, I still think that the operator can be allowed to go ahead and develop. But, that certainly is not a legal opinion." Number 1937 REPRESENTATIVE DAVIES said, "My concern is that it also gets to the question of `sanctions.' I do not know, even if it were to be held legal, constitutional, I concur with the Representative from Eagle River's concerns, again, about what you would do to enforce that. Whereas, if you had an incentive mechanism, the enforcement would be automatic. You would determine, through the Department of Labor, what the numbers were, and that would determine what the supplement royalty would be." CO-CHAIRMAN GREEN stated that Representative Davies certainly made an interesting case. REPRESENTATIVE DAVIES stated that there was one other point that he wanted to raise, "There is another constitutionality issue surrounding this whole bill and that has to do with whether we are meeting the test in the constitution of getting the maximum value, for the citizens of the state of Alaska, from the resource, maximum reasonable value. It is a bit of a judgement call. Clearly, there is no certainty in the world, if we do not know exactly what the benefits of one course versus the other course are, and that takes some judgement. That is what we are being asked to do. I think that is a reasonable request." REPRESENTATIVE DAVIES continued, "However, in the mean case ... the best case scenarios, we are explicitly leaving $2,000,000 on the table and the $41 million compared to the $37-39 million. What we are saying is that there is some other value to the state. I think if we were to let ... the other value is things like Alaska hire which without some such things, what you are trying to do here is pretty nebulous. I think if we were not to put something like that in, this thing could be challengeable on that ground. So, there is no requirement in here to get that other benefit. Therefore, we have not met our constitutional responsibility to get the best value for the citizens of the state of Alaska. Whereas, if there were some such mechanism, as I have suggested, I think it would go a long ways to meeting that challenge, as well." Number 2038 CO-CHAIRMAN GREEN acknowledged that Representative Davies made a very good case, "Again, I would say in the interest of time, and the fact that there are two more committees of referral, and the other side, there are ample opportunities to put that in. Also, there would be time then for the applicant to react to that, too. I would encourage you to pursue that because I think that you make a very good point." Number 2069 CO-CHAIRMAN WILLIAMS commented, "You have, also, in here, entered into contracts with Alaskan vendors? How many Alaska licensed firms are available to take ..." Number 2099 C0-CHAIRMAN GREEN replied, "We actually sent out invitations to one of our earlier meetings for vendors and contractors to come. I believe there were 30 or 40 ... there is a list, and we can make that available ... oil contractors vendors list. We had several, we had 15 or 20 that actually came, of which, probably 10 or more testified at one of our hearings. We have several contractors, we have several constructors and many employment labor forces. I think ... we have been told, at least, by one of the major participants in this that they will have the ability ... they even went beyond what this would require which, I find, really bizarre. They could construct, in the state of Alaska, things as large as a seawater treating plant which `blows me away.' Certainly, they can construct modules large enough for this project." Number 2132 CO-CHAIRMAN GREEN asked the wish of the committee. Number 2137 CO-CHAIRMAN WILLIAMS made a motion to move CSHB 548(RES) from the House Resources Committee with individual recommendations. Hearing no objection, CSHB 548(RES) passed out of committee. CO-CHAIRMAN GREEN asked Mr. Luttrell if he had anything to add. MR. LUTTRELL was not available. CO-CHAIRMAN GREEN asked for an at ease. CO-CHAIRMAN GREEN reconvened the House Resources Committee at 9:01 a.m. announcing that the committee would hear from the subcommittee, Representative Ogan, Chair, Davies and Green, on SB 112. SB 112 - DISCOVERY ROYALTY CREDIT Number 2230 REPRESENTATIVE SCOTT OGAN reported that the subcommittee had met twice with lively discussions centering around, "On the discovery royalty, making sure that we had very clearly defined who got there first, what would be considered, the type of structure or pool of oil that was discovered first. Probably, the most important thing was establishing when the clock starts ticking. The main amendment that was being discussed, which was actually divided into three questions, which was one you offered. We just recently came up with what, we believe, is a good amendment to the bill that would define, essentially, when the clock starts ticking. The intent, I believe, of the subcommittee, and, I believe that we should put on the record in this committee, is that that person who first starts producing the oil would be the one who gets the discovery royalty break. The intent of that would be to encourage ... keep someone from, maybe, discovered a pool but they will sit on it for five or ten years and discourage development. The idea of giving the break is to encourage oil to be developed and not be speculated upon." Number 2295 REPRESENTATIVE OGAN continued, "Therefore, I think we should offer up this amendment, we should call Amendment No. 1: Page 3, Lines 27-32 with parallel language on Page 2, Lines 3-11 "the lessee under a lease issued in the Cook Inlet sedimentary basin who is [CERTIFIED BY THE COMMISSIONER TO BE] the first to file a nonconfidential sworn statement with the commissioner claiming to be and who is certified by the commissioner to be the first to have drilled a well discovering oil or gas in a previously undiscovered oil or gas pool and who is certified by the commissioner within one year of completion of the discovery well to have drilled a well in that pool which is capable of producing in paying quantities shall pay a royalty of five percent on all production of oil or gas from that pool attributable to that lease for a period of ten years following the date of completion of the discovery well in that pool, and thereafter the royalty payable on all production of oil or gas from the pool attributable to that lease shall be determined and payable as specified in the leases; the reduced royalty authorized by this paragraph is subject to the following: [(A) A LESSEE IS ELIGIBLE TO PAY THE REDUCED ROYALTY AUTHORIZED BY THIS PARAGRAPH ONLY IF THE LESSEE IS THE FIRST TO DRILL A WELL DISCOVERING OIL OR GAS IN A PREVIOUSLY UNDISCOVERED OIL OR GAS POOL;] [(B)] (A) " Number 2306 REPRESENTATIVE AUSTERMAN asked, "Do we have a working draft in front of us now? Did we move to have a working draft in front of us, and then it went to subcommittee, or did it just go to subcommittee?" Number 2313 CO-CHAIRMAN GREEN informed, "We did not request that they bring back a working draft. I wish I had." REPRESENTATIVE AUSTERMAN clarified what he was saying, "The draft I have before me is version `K,' and is that on the table now?" CO-CHAIRMAN GREEN replied, "That is on the table." REPRESENTATIVE OGAN commented, "We did not draft a new committee substitute just because of the short time frame and the fact that working out the details of the amendment were worked into last night and, actually, this morning. So, we felt the best way to handle it would be to strictly offer an amendment to version K." REPRESENTATIVE AUSTERMAN responded that he just wanted to be sure that the committee had moved version K, and that was the version the committee was working from. REPRESENTATIVE OGAN stated that was correct. Number 2353 REPRESENTATIVE OGAN further stated that concluded his report. CO-CHAIRMAN GREEN recalled some discussion about certifying people with commercial production on pages 3 and 4. Number 2363 REPRESENTATIVE OGAN agreed, "Mr. Chairman, you are correct. On the amendment offered by you in the subcommittee, we divided the question on the amendment, actually, into three different subunits. What we called numbers two and three which was page 3, line 29, and on page 4, line 5, there was quite a bit of discussion about deleting the word `commercial,' and adding the words, `paying quantities.' Paying quantities is defined in statute ... no, I believe it is defined in regulation and we were ... there was some discussion when we left as to which regulation. There were three different cites in regulation where paying quantities are (indisc.) and this amendment... Number 2409 REPRESENTATIVE AUSTERMAN interrupted, "We are at a disadvantage because we do not have the amendment that he is referring to, that you made in subcommittee." CO-CHAIRMAN GREEN thought that amendment had been offered, "There was one offered that had two ... there was one offered with my name on it at committee before it went to subcommittee. I think that is what Representative Ogan is referring to." Number 2433 REPRESENTATIVE DAVIES inquired, "Can we go back, what are we talking about?" CO-CHAIRMAN GREEN answered, "He is just giving us a report as to what has happened in subcommittee. Then, we have not offered any amendments, yet. Then, Representative Ogan, was there going to be a choice made ...."(End Tape) TAPE 96-69, SIDE B Number 000 REPRESENTATIVE OGAN is saying...."privy to all the discussions of what happened after the meeting as far as what the amendment was going to come up with. I believe that is what this amendment addressed." CO-CHAIRMAN GREEN said, "I do not see the definition of `paying quantities' here." REPRESENTATIVE OGAN said, "I don't either." Number 024 REPRESENTATIVE DAVIES suggested that the chairman move an amendment so the committee would have something to talk about. Number 030 CO-CHAIRMAN GREEN said, "What we are still trying to get through, is the committee report. When the committee report is through, Representative Davies, I will say now, then we can go. Just bear with us." CO-CHAIRMAN GREEN stated to Representative Ogan that members of the Department of Natural Resources were present. Number 046 REPRESENTATIVE OGAN explained, "What happened was that after the committee ... the committee decided we were going to insert `paying quantities' and we were going to cite regulation in statute. We were going to pick which ..." CO-CHAIRMAN GREEN said, "That is not a good idea." REPRESENTATIVE OGAN further explained, "That was one of the things that we discussed. However, after the committee adjourned there was quite a bit of discussion that went on afterwards about the best way to do that. This is what we came up. So, I think, maybe, there needs to be some clarification." REPRESENTATIVE OGAN requested an at ease. CO-CHAIRMAN GREEN requested that the committee stand at ease and reconvene at 9:20 a.m. CO-CHAIRMAN GREEN reconvened the meeting at 9:22 a.m. Number 077 REPRESENTATIVE OGAN apologized for the confusion. "A lot happened after the meeting. Conceptually, what we agree to do was to adopt these amendments, number two and three. What the result of that was what we are introducing as Amendment No. 1, today. We would, also, like to add language for the purposes of this paragraph or this statute. We would like to adopt the language from 11 AAC 83.395 and put that in statute and that would define the paying quantities. A copy of that is forthcoming, 11 AAC 83.395." REPRESENTATIVE DAVIES signified that he just wanted to make sure that he understood what the committee is doing. Number 122 CO-CHAIRMAN GREEN clarified that Representative Ogan had offered Amendment No. 1 , "and went further to say, in addition, to what you see there, he is ... for the purpose of determining what `paying quantities" is, what that term means." REPRESENTATIVE DAVIES wondered if that should be Amendment No. 2. REPRESENTATIVE OGAN stated that it is amendment to the amendment. CO-CHAIRMAN GREEN said, "It is conceptually going to be as part of ... we can do it either way. Did you have a question Representative Barnes?" REPRESENTATIVE RAMONA BARNES indicated that she was just listening. REPRESENTATIVE DAVIES commented that she should listen carefully. CO-CHAIRMAN GREEN continued, "The amendment language is being reproduced and what he is suggesting is that because there may be some indication that paying quantities is a vague term. For the purpose of this paragraph in statute, there will be a definition. That definition being the same definition that is included in the regulations, at the current time. Those words are coming down to us. We have representatives from the Department of Natural Resources here if you want to ... for this period of time that we are talking about, he can tell us what those words are." Number 164 REPRESENTATIVE DAVIES stated that he was still trying to figure out ... "I want to make sure that I understood exactly what Amendment No. 1 is that is before us. While we are waiting maybe we can have another at ease until we get the other language. It says `with parallel language on page 2,' does that mean that it is to insert all this stuff, also, on page 2, lines 3-11? Number 187 REPRESENTATIVE AUSTERMAN interjected, "Before we go any further, Mr. Chairman, I want to make sure ... have we got Amendment No. 1 on the table now? In version K, on page 3, line 27, it starts, `with the effective date of this Act.' So, we are going to do what here? I do not understand the `with parallel language.' Are we going to just insert this language here starting on line 27 and move everything down? Are we removing anything out of this language on page 3? I do not follow this." Number 212 ANNETTE KREITZER, Legislative Assistant to Senator Loren Leman, Chairman, Senate Resources Committee, joined the panel. "Part of this is due to time constraints in drafting the amendment, and I apologize if it is not clear. The amendment goes to page 3, lines 27-32 beginning on line 27 where it says `the lessee.' So, we are inserting this following the comma after Act,. If you would like to correct the amendment to read, `insert following the comma after Act on that line. That is the intention, of course, the lessee under a lease issued in the Cook Inlet sedimentary basin. Then, also, if you will note on the amendment, it also goes over to page 4, and deletes (A), beginning on line 3 through line 5, because it is not necessary after the amendment is made." Number 251 REPRESENTATIVE BARNES asked clarification, "Where does it end?" MS. KREITZER answered, "It is inserted into the language that begins on line 27, and goes through line 32, and up to the top of page 4. Then we delete (A), on page 4." Number 255 REPRESENTATIVE AUSTERMAN confirmed everything after the comma on line 27. Number 260 MS. KREITZER assented, "Is replaced with this amendment, and then through the deletion of (A) on page 4, line 5. Then on line 6, (B) becomes (A). CO-CHAIRMAN GREEN asked members if everyone was aware of what was being deleted? REPRESENTATIVE BARNES wanted to go back to the top of the page to make sure she understood everything clearly. "You are deleting all of (A) through line 5 to (B)?." CO-CHAIRMAN GREEN agreed, "Yes, but we are actually deleting more than that. If we start over on page 3, line 27, after the word Act, that whole part of the rest of the page, clear over through line 5 on page 4, is all out. Then this language goes in there." MS. KREITZER explained, "Then the second part of this where it says with parallel language on page 2, lines 3 through 11, this section ... speaks to the exploration licensing because the sedimentary basin (indisc. interference with the microphone) expected to be a bit larger than the box created by the exploration licensing program. It says `with parallel language' on page 2, lines 3-11, because this is written slightly differently, and I did not have the time to create the parallel language that would be necessary to make it match. If you can accept that, conceptually, the idea is that you take the same language (indisc. more interference with the microphone) on page 2 to make it fit. They are written just a little bit differently, so we could not make the exact amendment to that section because of the way that this is phrased. I apologize to the committee for not having the time to make it complete there, but if you can accept that conceptually...." Number 356 REPRESENTATIVE AUSTERMAN said, "Let's go to page 2, line 3. Where in that line are we going to insert the language? Number 361 MS. KREITZER, "Well, it is going to have to be inserted where it begins on line 3 ... and, if you could adopt that conceptually because the drafter will have to make this language fit within that paragraph. It is written just slightly differently, the words would be the same within that section, lines 3-11, it is just that it is written slightly different than page 3." Number 399 CO-CHAIRMAN WILLIAMS wanted to know, "To make it clear then, we are putting this language over here, also?" MS. KREITZER responded, "Yes, Representative Williams, the only thing that would not go, of course, is the deletion of (A) which is at the bottom of this amendment." Number 414 REPRESENTATIVE OGAN wanted to clarify for the record that what is happening here is that when the subcommittee left, we agreed on page ... to change, according to page 3, line 29 and page 4, line 5, on these amendments that you offered here. In the meantime, what has happened is that the drafter of the original bill on the other body has gotten together with the Department of Natural Resources and has come up with language that, conceptually, does the same thing. That is what they are offering here, today. I just wanted to make that clear." Number 441 CO-CHAIRMAN GREEN said, "Yes, I think that explains on pages 3 and 4, I think the concern now registered by Representative Austerman is back on page 2. The problem is that the conforming language, the way it is drafted doesn't just `shoe horn in' to page 2 like it does in pages 3 and 4. Then it fits and you can just go from there, but over here it is parallel. It is the same concept, but there is going to have to be some massaging of the intro language. Obviously, as stated, there is no elimination of (A) because there is no (A) to eliminate. So, this major paragraph will be massaged in its entrance to where it can fit then on page 2. So that they are the same." Number 479 REPRESENTATIVE OGAN understood that stating that he simply wanted to make the point of what happened at the meeting and why the committee is dealing with a little bit different amendment, today. "Essentially, trying to get there ... and that is the issue that we need to discuss at the meeting here, is if what we agreed on in the subcommittee meeting, if this amendment, offered today, accomplishes, conceptually, what we are trying to achieve." CO-CHAIRMAN GREEN suggested that Representative Ogan might want to speak to the amendment as to how that does accomplish that, or are there any questions of the amendments?" Number 504 REPRESENTATIVE OGAN said, "I believe that it is a good faith effort to accomplish what we are trying to accomplish with our amendments in subcommittee. As they say, the `devil is in the details,' as far as the wording goes, but, conceptually, I believe that it is very similar." Number 527 REPRESENTATIVE BARNES requested that a working draft be prepared and brought back so the committee could look at it in its context. CO-CHAIRMAN GREEN replied, "We certainly can." CO-CHAIRMAN WILLIAMS asked to hear from the bill's sponsor. Number 543 MS. KREITZER apologized if she was confusing people, "It really is not that difficult of an amendment. I appreciate Representative Barnes concern about wanting to make sure that she knows exactly what she is moving out of committee. I very much appreciate that, but I will just attempt one more time to say, if you look at the language on page 2, line 2, where it starts, `except that the lessee who, proceeding under AS 38.05.131 - 38.05.134, that sets off, of course, this exploration licensing program. My point, only, was that we could not word-for-word insert Amendment No. 1 in here because of the beginning of that phrase that says `except that the lessee who proceeding under 131 to 134. What I would love to be able to do is to say after the comma, after 4, the lessee under lease issued in Cook Inlet sedimentary basin. Then, of course, it would just fit perfectly into page 2. I have to recognize that that phrase, `except the lessee who, proceeding under 131-134' sits there. So, I do not know how the drafter will fit this in here. I do not know if he would agree with the way that I would phrase it or if he will change it slightly. The intent, of course, is the same that, `except the lessee who, proceeding under exploration licensing under a lease issued in the Cook Inlet sedimentary basin who is the first to file a nonconfidential sworn statement with the commissioner, claiming to be and who is certified by the commissioner - take the amendment from there. That is the intent, Representative Barnes." Number 601 REPRESENTATIVE BARNES understood the intent, "But, I, also, want to see what it is, in its context. So, we can all have a clear reading of what it is that we are doing." CO-CHAIRMAN GREEN replied, "Okay." CO-CHAIRMAN WILLIAMS expressed concern, "In the interest of time, I would agree with that, I know what our time schedule is." CO-CHAIRMAN GREEN said, "Well, we are constrained. I can understand that Representative Barnes is a little reluctant to leave it to a drafter... it is not an uncommon process." REPRESENTATIVE BARNES agreed that it was not uncommon, but stated that the chairman could make it a little more clear than what the committee was doing, today. Number 630 CO-CHAIRMAN GREEN understood that Representative Davies concurred with the fact that there is confusion. "So, we will have a redrafted version ... and have it before us on Monday and it will, essentially, be, as has been discussed. Are there any other questions, so that when we do reconvene and look that over, we will have that in your offices for review. So, I would expect there will be very little time taken on Monday (April 29)." Number 654 REPRESENTATIVE DAVIES requested that the draft be delivered with time enough to review them before 8:00 o'clock Monday morning, preferably, Saturday or by Sunday afternoon. Number 674 REPRESENTATIVE AUSTERMAN asked if committee action had eliminated paragraph (C) on page 4. CO-CHAIRMAN GREEN said that (C) has not been removed, "it was discussed earlier in amendments, but those were never accepted." REPRESENTATIVE AUSTERMAN advised that the chairman, technically, needed to make that change on the amendment. REPRESENTATIVE BARNES discussed with the chairman the reordering of paragraphs. Number 716 CO-CHAIRMAN WILLIAMS asked if there any other amendments. CO-CHAIRMAN GREEN asked committee if there were other amendments to consider. Number 727 REPRESENTATIVE DAVIES observed, "This is probably a little bit premature, but we did not actually get the amendment to the amendment, or Amendment No. 2 before us. I presume that is going to come as part of the work draft that we are going to get back. I would like to say, right now, that I object to putting that language in statute. My view is that we ought to leave `paying quantities' and just let that be defined in the regulations. For the record, I wanted to let you know where I am on that." CO-CHAIRMAN GREEN commented that it sure is easier to strike than to put in. "Any other comments about what you will be receiving over the weekend and what we will be doing on Monday with this bill?" Number 759 REPRESENTATIVE OGAN suggested that the committee follow up on Representative Davies objection and discuss that out so we can move it out expeditiously on Monday. "I guess he objected to putting the language ... defining `paying quantities' in statute. Maybe we should discuss it in committee to find out ..." Number 788 CO-CHAIRMAN GREEN clarified that the committee did not have it before them. "So, what I am suggesting is that if we put it in, it is easy to strike. For the purposes of this paragraph, paying quantities means `Wheeeet' (whistle) and we strike it if we do not like it." Number 805 CO-CHAIRMAN GREEN announced that SB 112 would be held until Monday, April 29, 1996, 8:00 a.m.
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