Legislature(1995 - 1996)
02/14/1996 03:45 PM Senate RES
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SB 243 OIL & GAS LEASES: AREAWIDE & OTHERS
SB 245 N SLOPE OIL & GAS BEST INTEREST FINDING
SENATOR LEMAN announced SB 243 and SB 245 to be up for
consideration.
KEN BOYD, Director, Division of Oil and Gas, noted that he had
provided the Committee members with a book from DNR called the
Five-Year Oil and Gas Leasing Program, January 1995 which he would
refer to during his testimony. He directed them to a map that was
just before page 43 in the book and explained the schedule as
represented there.
He said generally these areas are selected by a nomination process
which involves the Division asking their customers (the oil and gas
industry) which areas they would like to see leased. With the
information they receive they devise the schedule. The nomination
process gives industry the acreage they want on a schedule they
need.
One of the changes in the process is that they are offering a
larger amount of land for sale on a yearly basis. This raises the
concern of how to clear the title to all the land. They have in
the recent past done the title work prior to the sale; even though
in the lease the State does not claim to have clear title. They
have now decided to do the title work after the sale.
Number 461
CAROL SHOBE, Realty Services Section, said that with the five-year
plan they do three title checks that occur over a two-year period
as they progress through a sale. The North Slope area is not a
very complex title; Alaska owns the majority of the oil and gas
interests.
JIM HANSEN, Division of Oil and Gas, explained that a best interest
finding is simply a document they have to produce by statute that
says the sale is in the State's best interest. It's a document
that contains a lot of environmental and habitat information.
Their process takes about 21 months from the time they start until
the time they can hold the sale. He explained the process with the
use of the chart before page 43 in the above mentioned book.
He said typically they get most of their comments at the end of the
comment period. It takes about six months to write a preliminary
finding based on information and comments. Until that time
everything is based on how fast they can do there work. From that
point on, the timing is controlled by statute and regulation. Once
they have done a first areawide finding, they can hold annual
sales, because the process is much shorter, typically eight months.
SENATOR LEMAN said he hoped to shorten the process.
MR. HANSEN explained that part of the problem they deal with is
that during the first portion of the process, they are at the tail
end of other best interest finding processes. They normally are
dealing with three sales at once. When they start contracting
things the work gets a little tougher.
SENATOR LEMAN asked if that was why there is a big fiscal note with
SB 243. MR. BOYD explained that the reason for the big fiscal note
is that it creates a separate process of sales when, in fact,
areawide leasing could be integrated into their current plan.
The Committee's attention was directed towards a large map
indicating lease sale areas prior to January 16, 1996.
TAPE 96-15, SIDE B
Number 581
The new area-wide finding was defined in blue and he indicated it
would be offered for lease. After the lease sale, on a yearly
basis, the whole area would be available for lease again without
having to do a new finding. The Commissioner needs to issue a
letter asking if there is any new information that would cause him
to modify the finding. If there is, mitigating measures could be
added. They now have enough information that they don't need to
have a new finding and this can go on for a period of five years
before another finding is needed.
MR. BOYD concluded that that was area-wide leasing as it is now,
without any changes to statute. He explained that SB 243 creates
a whole new process which he did not think was necessary since they
had accomplished area-wide leasing both on the North Slope, on and
off shore, and Cook Inlet under existing law .
SENATOR LEMAN asked what process they go through to determine if
there is new information. MR. HANSEN answered that they just send
out another call for comments and on that call they simply state if
there is any new information that has been available since the best
interest finding was released, to let them know what the
information is and what the impact is. They look at the
information and decide if it takes a revision of the finding. If
there is new information, they simply revise that portion of the
finding and issue that as if it were a final finding. Based on the
revision they would issue a decision of the Director as to whether
the sale should proceed or not.
SENATOR LEMAN asked him to explain why they left Cook Inlet off
their version of this legislation. MR. BOYD said SB 245 does not
create a new process. If they had not gotten title to a certain
tract of land, they would not be able to offer it in the next lease
sale if they hadn't offered it for sale previously. What SB 245
says is that if the best interest finding covers the tract it
doesn't matter if you offer it for sale, it can be offered for sale
again.
The reason Cook Inlet wasn't offered is they had to start
somewhere. In particular they have a title situation of titling
after the sale and it's fairly simple on the slope, but in Cook
Inlet the land ownership is quite a bid more complicated. In fact
they have two Cook Inlet conventional sales scheduled, 85A and 85
over the next couple of years. Most of the Cook Inlet area will be
covered by conventional lease sales and they can add acreage to
those sales. The Cook Inlet area has more complex title and land
issues. There are more complex issues with people, fishermen, and
landowners. Some people don't want to have lease sales in Cook
Inlet. The lease program has stalled for almost two years because
of litigation. The administration's plan is to see if area-wide
leasing can be successful on the North Slope first and then move it
to the off shore area and Cook Inlet. Once they get good findings
for sale 85 in the Cook Inlet, they have a good foundation from
which they can build an area-wide leasing program there and in many
areas of the State.
SENATOR LEMAN asked why they use the five-year period for the best
interest findings instead of using an indefinite time period. MR.
BOYD replied that it is worthwhile to revise a finding and he had
no objection to extending that time period. As long as you are
doing the yearly updates and have some way of putting out a
comprehensive document that incorporates the changes over time so
you don't have one document and 14 supplements.
SENATOR LEMAN stated he was just trying to find ways to save time
and money and he thought that this issue could be worked on.
Number 487
GEORGE FINDLING, ARCO, said that today they would have Dave Sutter
testify on ARCO's behalf.
DAVID SUTTER, Land Manager, ARCO Alaska, said that for a year they
have been suggesting that the State adopt an area-wide concept with
its lease sales in areas that have had significant past discoveries
where industry activities are on-going. Examples are onshore at
North Slope and Cook Inlet which are areas that have been excluded
from exploration and licensing.
MR. SUTTER said the first thing they would like to see the
legislature mandate annually is area-wide leasing on the North
Slope and Cook Inlet provided an necessary best interest finding
supports this sale. They would like to see the Cook Inlet and
North Slope lease sale cover just those open areas excluded from
licensing; no off shore areas. They would like to see a North
Slope area-wide lease sale occur no later than 1998 which matches
up with what Mr. Boyd has planned in sale 87. They would also like
to see a Cook Inlet area-wide lease sale on shore occur no later
than 1999 which Mr. Boyd has scheduled for August 1998. They would
like to see area-wide best interest findings on the North Slope and
Cook Inlet commence immediately. They would like to see the best
interest findings cover at least 10 years rather than five years.
They believe that the best interest findings should cover all lands
within a geographic sale area regardless of current lease status or
ownership. They believe comments for new information should be
solicited annually for the area-wide best interest findings and the
Commissioner of DNR should have discretionary authority to turn new
information required to change the best interest finding prior to
the expiration of the 10 year period. They also believe
legislation should not require additional regulations.
In conclusion, MR. SUTTER said, that they believe this legislation
will encourage more activity in those areas covered by area-wide
leasing and that real benefits will ultimately go to the State.
Number 440
AL HASTINGS, CIRI, commended the Committee for pursuing additional
measures the State could take to make State lands available for oil
and gas leasing on an annual basis. CIRI supports the concept of
areawide best interest findings and subsequent areawide leasing for
all on shore areas not subject to exploration licensing. Although
CIRI is may not be an active bidding participant in the State lease
sales, they are an active working interest owner on about 80,000
acres of State leases where they have partnered with other
companies. It is important that most of the lands on a particular
structure be available for lease so that an operator can proceed
with exploration and hopefully development. Having an annual
leasing program in Cook Inlet enhances both CIRI and the State
lands.
MR. HASTINGS stated if there are any ambiguities concerning the
Division's authority to have areawide leasing that clarifying
legislation would be appropriate. He urged that any legislation
considered by the Committee limit any additional regulatory
requirements since the regulatory writing and review process is
very time consuming.
In conclusion, MR. HASTINGS said he supported Mr. Sutter's
testimony from ARCO.
Number 414
PAT FOLEY, Chairman, Lands Exploration and Operation Committee,
AOGA, said they believe in regular predictable oil and gas leasing
programs would benefit the State and the industry. It would also
allow State agencies, the public, local government, and industry,
to efficiently plan and budget for oil and gas leasing.
Areawide leasing is the most viable method to make highly
perspective State lands available for exploration in a timely
manner. Implementation of areawide leasing could enhance Alaska's
competitiveness in attracting oil and gas exploration and
production which is essential to ensure sustainable future State
revenues. It could also reduce costs to the State for preparation
of best interest findings by combining individual best interest
findings into one single areawide finding. Areawide leasing would
allow industry to know with certainty which areas would be offered
annually. This could provide cost saving and efficiencies in a
lengthy and expensive lease sale preparation process. They
encourage areawide leasing in the areas of the State where
competitive leasing is regularly offered and they believe this can
be handled under existing authority. AOGA requests the
legislator's endorsement of these concepts.
SENATOR LEMAN noted that the Governor's bill doesn't say anything
about requiring annual leases which theirs does. He asked him if
he preferred the stronger approach in SB 243. MR. FOLEY said AOGA
supports a mandate requiring the Department to offer a lease sale
annually where leases are offered on a competitive basis.
Number 362
JOHN DONAHUE, General Manager, UNOCAL, said that they are the major
oil and gas producer in Cook Inlet. He said if they do not arrest
the decline in the near future the entire infrastructure of the
Cook Inlet oil production will eventually collapse. If that
occurs, additional exploration will be very difficult. He
recommended that the State should offer consistent and extensive
lease sales in the Cook Inlet area that will require a best
interest findings type of procedure.
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