Legislature(2011 - 2012)BARNES 124
02/15/2012 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB229 | |
| HB280 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 280 | TELECONFERENCED | |
| += | HB 229 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 280-OIL & GAS TAX CREDITS: KOTEZBUE/SELAWIK
2:21:42 PM
CO-CHAIR FEIGE announced that the next order of business would
be HOUSE BILL NO. 280, "An Act providing for a credit against
the oil and gas production tax for costs incurred in drilling
certain oil and gas exploration wells in the Kotzebue Basin or
the Selawik Basin; and providing for an effective date."
2:22:13 PM
BRODIE ANDERSON, Staff, Representative Reggie Joule, Alaska
State Legislature, speaking on behalf of the prime sponsor,
Representative Joule, explained that HB 280 proposes an oil and
gas exploration tax credit for the underexplored area of the
Kotzebue/Selawik Basin. The legislation incentivizes
exploration drilling as past indicators have shown that
exploration and development in the Kotzebue Basin is possible.
However, due to its remote location exploration, economic
growth, and development has been difficult. Furthermore, the
lack of reliable energy supplies and high energy prices has made
exploration and development in the area even more difficult.
Therefore, this legislation will strongly encourage companies to
invest in this frontier basin such that rural Alaska can be
provided with lower cost energy and provide opportunities for
exploration and in-state use. Mr. Anderson then reviewed the
sections of HB 280. He explained that Section 1 adds the
Kotzebue Basin to the actual production tax credit. Sections 2
and 3 remove the definition of the Cook Inlet from the previous
section and Section 3 creates a new set of definitions in its
own subsection. Section 4 is the actual language establishing
the Kotzebue Basin tax credit. Section 5 specifies an effective
date.
2:24:19 PM
MR. ANDERSON, referring to Section 4, pointed out that the tax
credit would be applicable for anyone drilling the first three
holes down to 2,000 feet for the purpose of exploration of oil
and gas. The first [exploration well] is entitled to a 100
percent tax credit of its exploration well expenditures or $30
million, whichever is less. The second [exploration well] is
entitled to a credit in the amount of 90 percent of the
exploration well expenditures or $27 million, whichever is less.
The credit for the third [exploration well] would be in the
amount of 80 percent of the exploration well expenditures or $24
million, whichever is less. If these exploration wells move to
production, 50 percent of the tax credit is required to be paid
back.
2:25:22 PM
REPRESENTATIVE KAWASAKI observed that HB 280 is similar to
legislation for the Nenana Basin. He inquired as to why the
drilling depths are very different between HB 280 and HB 276.
MR. ANDERSON informed the committee that the state needs to look
at frontier basin exploration as the next step to provide for
the state's economy. When looking at the Kotzebue Basin there
were indications that there could be shallow gas reserves that
might be producible. Therefore, the legislation was drafted
with the shallower ceiling in order to capture some potential
reserves that wouldn't otherwise qualify because the cost to get
the rig to the Kotzebue Basin will remain the same regardless of
the depth of the well.
2:27:18 PM
REPRESENTATIVE MUNOZ inquired as to why the credit proposed in
HB 280 is so much greater than the credit in the Nenana Basin
legislation, HB 276.
MR. ANDERSON explained that the credit in HB 280 was modeled
after the Cook Inlet jack-up rig credit and then considered the
cost of transportation, the remoteness of the site, and other
factors. Therefore, the cost of transporting materials to the
site was added to the [base] credit.
2:28:12 PM
CO-CHAIR SEATON, referring to the jack-up rig, asked if this
legislation refers to onshore or offshore.
MR. ANDERSON said that it's the expectation that this would at
least begin onshore. In further response to Co-Chair Seaton,
Mr. Anderson related his understanding that the language used
was for the purpose of oil and gas, but he wasn't sure about the
definition of wells. He offered to speak with the drafters to
ensure that the clarifying language would only include wells and
rigs that would classify for oil and gas.
2:30:04 PM
REPRESENTATIVE P. WILSON pointed out that the language in
Section 2 on page 2, lines 18-19, specifies that "a person
drilling an exploration well is not entitled to a credit for
more than one exploration well under this subsection." However,
the language in Section 4 on page 4, lines 6-8, specifies that
"A person or an affiliate of a person may qualify for a drilling
credit for more than one exploration well under this
subsection."
MR. ANDERSON related his understanding that the language in
Section 2 was referring to the Cook Inlet directly, while the
language in Section 4 is the new language for the Kotzebue
Basin. He offered to review whether there is a conflict and get
back to the committee.
2:32:23 PM
LANCE KILVAGUIQ MILLER, PhD, Vice President - Resources, NANA
Regional Corporation, Inc., began by clarifying that the
Kotzebue/Selawik Basin is essentially the same area. He then
expressed excitement for this proposal in terms of the potential
for energy independence for rural Alaska as well as the state.
The map on the slide entitled "Kotzebue Basin Location"
illustrates that the basin goes offshore and is part of the
Chukchi Hope Basin system. However, the onshore potential is
what's being considered. The basin is a fairly significant size
that is about 20,000 feet thick with some Tertiary and
Cretaceous sediments, which refers to the geologic age of the
strata. He then moved on to the slide entitled "Basin
Comparison" that provides an aerial view of the Kotzebue Basin
in comparison to the Cook Inlet Basin. Although the two basins
are similar in size, it doesn't mean the Kotzebue Basin will
reach the same production as the Cook Inlet Basin. For
perspective, Mr. Miller informed the committee that 40 years ago
2 wells were drilled by Chevron in the Kotzebue Basin as opposed
to the numerous wells that have been drilled in the Cook Inlet
Basin. He then directed attention to the slide entitled "Local
Geography" that presents a map specifying the location of the
two wells drilled in the Kotzebue Basin. This map illustrates
the size of the Kotzebue Basin, which is 140 miles by 75 miles.
This map also specifies the prospects that have been defined
based on the geology of the region.
2:34:49 PM
MR. MILLER then moved on to the slide entitled "Exploration
History and Data." He stressed that the Kotzebue Basin is an
exploration play for which there has been some work. In 1972
Chevron approached NANA Regional Corporation and some seismic
work led to the aforementioned two wells being drilled. In the
course of that time, the companies wanted to look at the base,
the rocks, and the basin [which resulted in the drilling of]
stratigraphic holes rather than looking at the best potential
geologic targets. The next slide, entitled "Primary Reservoir
Targets" is a [60-mile] cross section between the two wells
[drilled by Chevron in 1974]. The Nimuiuk Point well was
drilled to 6,315 feet while the Cape Espenberg well was drilled
to 8,360 feet. The geology of the area matched well as there
were good source rocks and host rocks for hydrocarbon plays
across the 60 miles of basin [between the two wells]. Although
it's a geologist's best guess, it's definitely dated efficient.
The slide entitled "Basin Overview" highlights the two basins
and the good sources for hydrocarbon potential. The green lines
are the faults, which when combined with the folding of the
rocks combine to what are hopefully good traps for drilling.
2:37:03 PM
MR. MILLER pointed out that the slide entitled "2 of the 30
Prospects" highlights two of the potential targets, Cape
Espenberg Prospect and Amaouk Creek Prospect, in relation to the
wells drilled by Chevron in 1974. NANA Regional Corporation had
an agreement, which has now lapsed, with California Independent
to evaluate and drill some holes. Although the deal was signed
in 2008 when gas prices began to decrease, the result was a lot
of reinterpretation of the work. The tan areas of the
aforementioned slide are the areas NANA Regional Corporation
would like to drill. He then directed attention to the slide
entitled "Amaouk Creek Prospect," which is just a seismic line
in the Amaouk Creek prospect. To a geophysicist, this
represents about a 10,000 foot cross section of the earth. The
interpretation of the folds and closures is that the rock units
are folded and some of the domes capped by reservoir seals could
be good potential for hydrocarbons. The little map inset in the
upper right is an illustration of a dome closure of the Amaouk
Creek prospect; the blue line running through it is the cross
section presented on the slide. Although this is old data from
the 1970s, it has been reinterpreted. Referring to the slide
entitled "Amaouk Creek Prospect", he pointed out that the data
relates that there is coal, shale, and sand. The next component
would be to find the proper structure, either folds or faults as
illustrated on the prior slide. Therefore, Mr. Miller said that
the Amaouk Creek Prospect is a fairly large sized dome with a 27
square mile closure that has potential for hydrocarbon
accumulation. Again, Mr. Miller said he's not trying to say
there will be 2 trillion cubic feet (tcf) of gas in this
closure, but he directed attention to the slide entitled "Amaouk
Creek Prospect: Comparison to Partial Analogues" that relates
what the Kenai and Beluga River Gas Fields in the Cook Inlet has
produced. The comparison illustrates that the Amaouk Creek
Prospect has some fairly significant large structures showing
per the geology and geophysics in the region.
2:40:27 PM
MR. MILLER, referring to the slide entitled "Key Points",
reiterated that over 40 years ago two wells were drilled into
this deep basin, which is similar in size to Cook Inlet and San
Joaquin-Sacramento Basins. There are many indications of a
significant hydrocarbon system. Although it remains to be seen
whether the hydrocarbons are gas prone or oil prone, it's likely
to be more of a gas play. As was discussed, it has been
difficult to attract financing. In the past, the majors
performed the [exploration] work for oil, but now the hand full
of majors leave the high risk work to the independents. Mr.
Miller stressed that [Amaouk Creek prospect] is an exploration,
wildcat play. Certainly, there are local needs in the region
and Red Dog is a potential user. Although he hesitated to say
it, Mr. Miller said that ideally the prospect could be large
enough to export, which is specifically why he didn't include
anything about commercialization as there is the need to be
careful about expectations.
2:43:37 PM
CO-CHAIR SEATON recalled that part of the reason for the
incentive in the Cook Inlet was that people had tapped into the
upper levels and never gone to the lower areas. This proposal
seems to only go to 2,000 feet and doesn't even reach the cap.
With the Cook Inlet proposal the intent was to develop in order
to gain information all the way to the tertiary level.
Therefore, he inquired as to why the proposal for [Amaouk Creek]
would be to drill relatively shallow wells and not assess. With
the Nenana Basin, the [goal] has been to obtain information that
would be applicable and beneficial to the state.
MR. MILLER clarified that NANA Regional Corporation isn't tied
to the 2,000 feet. Of interest, Mr. Miller related that in the
1950s a water well was drilled near Kotzebue and it blew out mud
and water for about 12 hours. Additionally, there are some
targets located at levels less than 2,000 feet. Therefore,
there is the potential for shallow gas. However, the reality is
the desire to drill deeper. He noted that the maximum basement
is likely about 10,000 feet and that is likely the intent. He
further mentioned that the matter must also be vetted by DNR,
which would thwart merely drilling a water well. In further
response to Co-Chair Seaton, he stated that NANA Regional
Corporation would be fine using the Nenana language.
2:46:56 PM
CO-CHAIR SEATON stated that the [committee] is trying to develop
geologic information and resource assessment because producing
the first thing that is hit doesn't give the state the
information regarding the full potential of the basin.
2:47:41 PM
CO-CHAIR FEIGE related his assumption that NANA Regional
Corporation wants to service Kotzebue and the local market with
a heating source. He asked if it would make sense to balance
the risk and reward and drill a shallower well that is perhaps
more likely to payout. He then asked if NANA Regional
Corporation's main objective to find development suitable for
export or for serving the local [energy] need.
MR. MILLER answered that it's really both. Certainly, there is
incredible support for onshore drilling.
2:48:44 PM
ELIZABETH SAAGULIK HENSLEY, JD, Corporate & Public Policy
Liaison, NANA Regional Corporation, interjected that it is one
of the top four priorities of the Northwest Arctic leadership
team, which consists of NANA Regional Corporation, the Northwest
Arctic Borough, the Northwest Arctic Borough School District,
and Maniiliq Association.
2:49:08 PM
CO-CHAIR FEIGE inquired as to how much of Kotzebue Sound is
state waters versus federal waters.
MR. MILLER, referring to the earlier question, the goal is both
to export oil and to provide it for local use. As the case with
most resource projects in Alaska, it needs to be significant in
order to make it economic and thus a goal of the project would
be for it to be exportable. Mr. Miller couldn't specifically
provide the amount of land in the Kotzebue Basin that's state
land, but he did characterize it as a significant amount of
state land in the water. He offered to obtain that information
for the committee.
2:50:36 PM
REPRESENTATIVE GARDNER asked whether NANA Regional Corporation
has spoken with any explorers regarding interest in this
approach. Since this area is only a few miles from the coast,
she asked if the water is deep enough to use tankers.
MR. MILLER informed the committee that NANA Regional Corporation
has been fairly active in terms of explorers. In fact, even in
the 1990s, NANA Regional Corporation engaged geologists who used
to work with Chevron and the majors. More recently, NANA
Regional Corporation has spoken with a fair number of
independents. He related that there is interest and noted that
people were unaware of the existing credits, and thus as the
word spreads more will be attracted. Still, the location is
remote and a drill would be tied up for a year. With regard to
the tanker question, Mr. Miller said that right outside of
Kotzebue a tanker would have to be litered.
MS. HENSLEY confirmed that a tanker would have to liter.
Although a tanker can get near Kotzebue, items would have to be
barged. She noted that there is also a port at Red Dog. She
then reminded the committee that the Northern Waters Task Force
did recommend that the state consider more options in the Arctic
north of Nome. There has been discussion and in fact, the port
bond includes funds for a port at Kotzebue.
2:53:16 PM
REPRESENTATIVE GARDNER related her understanding that without a
coastal zone management program, the state can't construct a
deep water port in the Arctic. She asked if that's true for
Kotzebue as well.
MS. HENSLEY said she is not sure about that, although she
recalled hearing the same question. She opined that more
research has to be performed on that matter, and thus she
offered to provide the committee more information on that after
more analysis is done.
2:53:53 PM
REPRESENTATIVE KAWASAKI, recalling Mr. Miller's comments
regarding the difficulties of exploration in this location and
Alaska, questioned how one can be sure gas will be produced even
if it's found and the state subsidizes 100 percent of it.
2:54:53 PM
MR. MILLER said that if [the play] is large enough, liquefied
natural gas (LNG) has been looked at conceptually which would be
for Asian markets. Although the discussion is in terms of gas,
the hope is that there will also be oil, which would change the
game. What the true hydrocarbon system is, is still being
evaluated, he highlighted. He agreed that commercialization
needs to be significant to get it to markets, which is part of
exploration.
MS. HENSLEY added that the Red Dog Mine is actively exporting.
In fact, Red Dog is one-quarter of the $4 billion in the
[state's exports]. She emphasized, "So, if we do have the
amount, then ... we can find a way ...; we've done it with Red
Dog."
2:56:26 PM
CO-CHAIR FEIGE cautioned that this is still speculation and
depends upon how much information is available. The more
information there is the more the risk is reduced for investors.
He said that NANA Regional Corporation already seems to have a
fair amount of seismic data that defines a lot of the area. He
asked if more seismic information or seismic information with
newer technology is needed.
MR. MILLER clarified that he isn't a petroleum geologist, but
those he knows have provided mixed reviews. Some have said it's
drill ready while others say that it would be nice to perform
more 3-D [seismic]. He opined that he would leave it up to the
person putting up the money.
2:58:10 PM
CO-CHAIR FEIGE asked if it's important for the company to have a
stake in the game to keep them honest and tighten up their own
decision making.
MR. MILLER replied yes, it's always good to have some skin in
the game.
2:59:03 PM
REPRESENTATIVE KAWASAKI pointed out that one of the differences
between the Nenana legislation and HB 280 is that HB 280 has an
immediate effective date. He asked if that immediate effective
date is in anticipation of folks drilling in the next season.
MR. MILLER related that the thought was that as this moves ahead
if folks get interested this year, they probably wouldn't drill
until the next year. He opined that it's already too late to
drill in 2012-2013. The idea is that if it all worked out, a
rig would be tied up and that would amount to $5-$6 million.
Therefore, costs could be incurred well before drilling
commenced.
[HB 280 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 280 - Version M.pdf |
HRES 2/15/2012 1:00:00 PM |
HB 280 |
| HB 280 Sponsor Statement.pdf |
HRES 2/15/2012 1:00:00 PM |
HB 280 |
| HB280-DNR-DOG-2-10-12.pdf |
HRES 2/15/2012 1:00:00 PM |
HB 280 |
| NANA Regional Corp. Land Status.pdf |
HRES 2/15/2012 1:00:00 PM |
|
| HB 280 NW AK Oil & Gas Play.pdf |
HRES 2/15/2012 1:00:00 PM |
HB 280 |
| Geology & Hydrocarbon Potential - Kotzebue Basin - NANA Regional Corp.pdf |
HRES 2/15/2012 1:00:00 PM |
|
| HB 229 BGCS Fact Sheet.pdf |
HRES 2/15/2012 1:00:00 PM |
HB 229 |
| HB 229 Sponsor Statement.pdf |
HRES 2/15/2012 1:00:00 PM |
HB 229 |
| HB229 DCCED Fiscal Note.pdf |
HRES 2/15/2012 1:00:00 PM |
HB 229 |
| CSHB 229 Ver I.pdf |
HRES 2/15/2012 1:00:00 PM |
HB 229 |
| HB229 Sectional.pdf |
HJUD 3/2/2012 1:00:00 PM HRES 2/15/2012 1:00:00 PM |
HB 229 |
| HB229 Support - APHA.pdf |
HRES 2/15/2012 1:00:00 PM SJUD 4/6/2012 1:30:00 PM |
HB 229 |
| HB229 Support - BGCSB.pdf |
HRES 2/15/2012 1:00:00 PM SJUD 4/6/2012 1:30:00 PM |
HB 229 |
| HB229 Support - Gunlogson.pdf |
HRES 2/15/2012 1:00:00 PM SJUD 4/6/2012 1:30:00 PM |
HB 229 |
| HB229 Support Letter - Kubat.pdf |
HJUD 3/2/2012 1:00:00 PM HRES 2/15/2012 1:00:00 PM SJUD 4/6/2012 1:30:00 PM |
HB 229 |
| HB229 Support Letter - Vrem.pdf |
HRES 2/15/2012 1:00:00 PM SJUD 4/6/2012 1:30:00 PM |
HB 229 |