01/11/2006 09:00 AM House W&M

HB 223-NATURAL GAS PIPELINE INCENTIVE/ GAS TAX                                                                                
                                                                                                                                
9:33:08 AM                                                                                                                    
                                                                                                                                
CHAIR WEYHRAUCH announced that the  final order of business would                                                               
be HOUSE  BILL NO. 223,  "An Act levying  a tax on  certain known                                                               
resources  of natural  gas, conditionally  repealing the  levy of                                                               
that  tax, and  authorizing a  credit  for payments  of that  tax                                                               
against amounts due  under the oil and  gas properties production                                                               
(severance)  tax  if  requirements   relating  to  the  sale  and                                                               
delivery  of  the natural  gas  are  met;  and providing  for  an                                                               
effective date."                                                                                                                
                                                                                                                                
9:33:32 AM                                                                                                                    
                                                                                                                                
WALTER   J.  HICKEL,   former  governor   of  Alaska,   commended                                                               
Representatives  Eric Croft  and Harry  Crawford for  authorizing                                                               
the  initiative [HB  223] that  is forcing  Alaska to  look at  a                                                               
reserve tax  on Alaska's  natural resources  of the  North Slope.                                                               
He  related  his  belief  that  this  legislation  is  absolutely                                                               
necessary and not a new concept.   He recalled his time as former                                                               
United States  Secretary of Interior  in the late 1960's  when he                                                               
was responsible for America's energy  policy.  He related that in                                                               
most  cases, if  an exploration  company could  not prove  within                                                               
five  years that  it had  adequately searched  for resources,  or                                                               
failed to produce those resources,  its lease would expire.  When                                                               
oil was discovered in Alaska's  North Slope, this requirement was                                                               
not  included  in  early  leases; however,  it  was  implied  and                                                               
expected that if resources were found, they would be marketed.                                                                  
                                                                                                                                
MR. HICKEL then referred to  E.L. "Bob" Bartlett's 1955 speech to                                                               
the Alaska  Constitutional Convention  in which he  addressed the                                                               
danger of Alaska's  natural resources being exploited  as well as                                                               
the  danger  of postponing  the  development  of those  resources                                                               
until such  time as outside  interests see fit.   [A copy  of Mr.                                                               
Bartlett's  speech   is  included   in  the   committee  packet.]                                                               
However, the  state owns  the North Slope  and merely  leases the                                                               
oil and  gas resources  with the  expectation of  development for                                                               
the  maximum benefit  of Alaskans.   With  regard to  last week's                                                               
Anchorage Daily News article that  characterized the reserves tax                                                               
as punishing  the producers, Mr.  Hickel related his  belief that                                                               
such is the consequence for keeping  what may be over $1 trillion                                                               
worth of [the  state's] resources off the market  for the benefit                                                               
of stockholders.                                                                                                                
                                                                                                                                
MR.  HICKEL opined  that the  North  Slope's natural  gas is  the                                                               
state's legacy resource.   He further opined that  if natural gas                                                               
was transported and processed in  Alaska, it has the potential to                                                               
provide  well-paid  jobs in  the  state  for generations.    "The                                                               
proposed  $1 billion  a year  penalty  should be  a minimum,"  he                                                               
said.    He added  that  the  only  reason there  is  controversy                                                               
surrounding this is the undue  influence of oil and gas producers                                                               
in the state's governmental process.                                                                                            
                                                                                                                                
MR.  HICKEL   then  turned   to  HB   223  and   highlighted  his                                                               
understanding that the producers merely  have to build a pipeline                                                               
to avoid the penalty.  The fastest  way to start a pipeline is to                                                               
build the  All-Alaska line.   Mr. Hickel concluded by  urging the                                                               
committee's support of HB 223 in  a ballot initiative or to craft                                                               
stronger  legislation,  either  of which  would  demonstrate  the                                                               
legislature's pledge to uphold the Alaska State Constitution.                                                                   
                                                                                                                                
9:39:23 AM                                                                                                                    
                                                                                                                                
MR. HICKEL, in response to  Representative Rokeberg, recalled his                                                               
part in getting the pipeline built.   He then emphasized the need                                                               
for Alaska  to act as  an owner state.   In fact, he  opined that                                                               
the state should build the [natural] gas pipeline and own it.                                                                   
                                                                                                                                
9:45:10 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  proceeded to announce the  next witness                                                               
to testify on HB 223.                                                                                                           
                                                                                                                                
9:45:17 AM                                                                                                                    
                                                                                                                                
MARK  MYERS,  drawing  on  his  experience  as  former  director,                                                               
Division of  Oil &  Gas, Department  of Natural  Resources (DNR),                                                               
explained that  he was testifying  at the request of  the sponsor                                                               
of HB  223 to address  the economics  of a gas  pipeline project.                                                               
He said his  preference would be for the companies  and the state                                                               
to honor  the terms of  the leases  and the plans  of development                                                               
for the fields.  However,  if the administration fails to enforce                                                               
the lease requirements after companies  fail to act on them, then                                                               
it's worthy to  discuss what other mechanisms are  available.  As                                                               
indicated  earlier, one  of the  key questions  is: what  are the                                                               
economics of the  gas pipeline.  He opined that  the gas pipeline                                                               
is economic.   In fact, a report done by  Econ One Research, Inc.                                                               
for  the Alaska  State Legislative  Budget &  Audit Committee  on                                                               
August  31, 2005,  [a  copy  of the  report  is  included in  the                                                               
committee packet]  illustrates that the gas  pipeline is economic                                                               
in a number of ways.                                                                                                            
                                                                                                                                
MR. MYERS, in  summarizing some of the key points  in the report,                                                               
noted  the project  is very  economical  at gas  prices north  of                                                               
$4.00/million British  thermal units (mmbtu), and  the market and                                                               
companies  are  predicting $7.00  to  $8.00/mmbtu  gas prices  in                                                               
general.   Typical  project risks,  such  as low  gas prices  and                                                               
inadequate  reserves, are  not an  issue,  he noted.   Mr.  Myers                                                               
reviewed the various  scenarios given by Econ  One Research, Inc,                                                               
all of  which illustrate that the  project is economic.   He then                                                               
referenced Figure 8-3, which  illustrates that earlier production                                                               
of the  gas pipeline versus  later production is  more economical                                                               
for the state.                                                                                                                  
                                                                                                                                
9:57:34 AM                                                                                                                    
                                                                                                                                
CHAIR WEYHRAUCH  announced that further  questions for  Mr. Myers                                                               
regarding  his testimony  may  be addressed  at  the January  18,                                                               
2006, meeting.                                                                                                                  
                                                                                                                                
[HB 223 was held over.]