Legislature(2011 - 2012)BUTROVICH 205
03/26/2012 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Presentation by Chrystia Chudczak, Assistant Commissioner, Canadian Federal Northern Pipeline Agency | |
| SB215 | |
| SB209 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SB 215 | TELECONFERENCED | |
| += | SB 209 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 209-DEVELOPMENT PLANS FOR OIL & GAS LEASES
4:37:32 PM
CO-CHAIR PASKVAN announced the consideration of SB 209. He asked
Senator Wielechowski if he had any comments before the committee
heard the invited testimony.
SENATOR WIELECHOWSKI said he did not have additional comments
but he had received a lot of favorable feedback on the bill.
4:38:37 PM
ARA MORIARTY, Executive Director, Alaska Oil and Gas Association
(AOGA), is a business trade association to foster long-term
viability of oil and gas industry. AOGA hold active leases for
more than 1.2 million acres of state land. They do not support
SB 209. She gave the following comments:
COMMENTS OF THE ALASKA OIL & GAS ASSOCIATION
ON SB 209
SENATE RESOURCES COMMITTEE
MARCH 26, 2012
Co-Chairmen Paskvan and Wagoner, Members of the
Committee: good afternoon. For the record, my name is
Kara Moriarty and I'm the Executive Director of the
Alaska Oil and Gas Association (AOGA). Thank you for
the invitation and opportunity to testify on Senate
Bill 209.
AOGA is a business trade association whose mission is
to foster the long-term viability of the oil and gas
industry for the benefit of all Alaskans. Our 16
member companies represent the breadth and scope of
the industry in Alaska, and have interests all across
Alaska, both onshore and offshore.
As I've mentioned in previous testimony, AOGA's
members hold active leases for more than 1.2 million
acres of state land.
AOGA does not support Senate Bill 209. This bill was
described as being a "pro-development bill that simply
seeks to get more oil in the pipeline." We
respectfully and emphatically disagree. We think this
bill would do the exact opposite and kill development
before it even has a chance of happening because it
will have a chilling effect on the very first step in
the development process, the leasing program.
4:40:26 PM
The current leasing system in Alaska is an "auction"
system that is used on State land and is also used on
federal lands in the Gulf of Mexico, offshore Alaska,
and the National Petroleum Reserve. For state leases,
the areas offered are quite small. By law, a lease
cannot be more than 5,760 acres, or 9 square miles.
The bid variable for the "auction" is almost always a
cash bonus. The bonus is calculated by multiplying the
number of dollars per acre bid by the number of acres
contained in the lease. Whoever bids the most for each
lease wins the exclusive rights to explore on that
lease for the term of the lease. Every activity that
is carried out on the lease requires permits. No
permits are granted, or lately even guaranteed, as a
result of the bidding process.
This bill seems to shift the current leasing program
into a licensing program. Licensing is used around the
world and comes in many different variations.
Typically VERY large areas of land are made available
to be licensed by competing companies. The licenses
Senate Resources Committee Page 2 SB 209 March 26,
2012 are often awarded based on the work commitment
made. Typically there is no cash bonus. The winner is
determined by how much work, and often the kind of
work, the potential licensee is willing to do.
Licenses are awarded for only very large tracts of
land, and the jurisdiction usually provides seismic
information and awards permits in a much more
expedient manner versus Alaska where state and federal
permits take years, not months.
4:42:30 PM
Alaska has had a licensing program for frontier
exploration areas for almost 20 years. Licenses are
available for up to 500,000 acres of land and are
based on a work commitment and there is no bonus bid.
It is important to note, that the current state
licensing program is and was created for the
exploration basins, not the producing provinces, so it
is current statute that licensing cannot be used in
the Cook Inlet or on most areas of the North Slope.
When the current area-wide leasing program was
established, it was clear the administration and
legislature at the time saw the need for both systems,
and the legislature did not want to give up the bonus
bids in those areas. In fact, the state's area-wide
leasing program is one of the few bright spots of
doing business in Alaska from an oil and gas company's
perspective, because our current area-wide leasing
program is very consistent. SB 209 would create
administrative burdens that will likely alter the
certainty for timing and awarding of bids.
Additionally, a number of licenses have been awarded
and wells have been drilled in these exploration
frontier basins, but it is crucial to point out that
no production has yet resulted from a license.
As I mentioned, licensing involves very large swathes
of land. In doing some research, we evaluated an
upcoming licensing round in Greenland, the entire
licensing area is about 50,000 square kilometers. The
individual licenses will be available within that area
range from 420,000 acres to 940,000 acres. By
comparison, the entire Prudhoe Bay field is about
215,000 acres. So, the smallest license available is
about twice the size of the entire Prudhoe Bay
oilfield. Additionally, the smallest license available
would contain about 72 state leases.
If the state wants to turn our current area-wide
leasing program into a licensing program, then the
state should evaluate all facets of a licensing
program, such as providing much more seismic
information up front and expediting the permitting
process.
4:45:01 PM
In evaluating this last lease sale on December 7,
2011, the state received over $14 million in high
bonus bids and leased almost 335,000 acres in 178
different tracts of land. Two currently producing
companies participated in this sale; long-time Alaska
company ConocoPhillips won 34 tracts and one of the
state's smallest producers, Pioneer Natural Resources,
submitted one bid, which it obtained for one tract.
The other companies that participated were Royale
Energy, Great Bear Petroleum, Repsol, 70th & 148 (a
division of Armstrong Oil and Gas), Woodstone
Resources, Savant Alaska, Alaska LLC and individuals
such as Dan Donkel, Samuel Cade, Paul Gavora, Andrew
Bachner and Keith Forsgren.
I think it is important to note, that the two most
recent producing fields, Oooguruk and Nikaitchuq, were
leases originally obtained by one of these smaller
companies and were eventually sold and/or partnered
with a producing company to explore and produce these
leases.
Following the lease sale in December, the commissioner
of Natural Resources, Dan Sullivan stated, 'It was
quite a respectable showing.' He went onto say, 'I
would say that there were some companies that I
thought would show up who didn't. It's always hard to
know why…' Sullivan said further, 'These (lease sales)
are just the first inning of a long term strategy…
Here is the issue: We recognize the status quo is not
working. A critical part of our five-point plan is tax
reform.'
4:47:23 PM
Even though the state received 219 bids for the North
Slope area-wide lease sale, no bids were submitted for
the same lease sale in the Foothills area.
Senate Bill 209 says that for each lease a company
wants to submit a bid for, the bidder must submit a
plan of development for that lease. So, for this last
North Slope Area-wide lease sale, 219 individual bids
were received and as I mentioned 178 tracks were sold.
Under this legislation, the above bidders would have
had to submit 219 individual plans of development for
evaluation. Royale Energy would have had to submit 87
different plans of development, Great Bear 32 and
Repsol 26. AOGA finds it hard to believe that
especially these smaller companies or any companies
would have the ability and resources to submit
detailed plans of development prior to submitting a
bid for lease. The same concern rings true not only
for the North Slope, but for Cook Inlet as well. Cook
Inlet is experiencing a resurgence of interest and
requiring a plan of development prior to a lease sale
is impractical and unnecessary.
In addition, this bill would require companies to
provide their own interpretation of each lease prior
to bidding and determine how they will develop each
lease without having the opportunity to evaluate each
lease. A company may have limited seismic and may not
have access to all the current well data. The bidder
may be working from a geologic concept that can't be
tested until they actually have the lease and are able
to evaluate it. That's what exploration is for, to
test what is actually there, much in the same way
Repsol is doing with their leases on state land and
what Shell is trying to do in the offshore. A company
should not be forced into making unnecessary
commitments before it has a robust opportunity to
evaluate and understand what the potential of the
lease might be.
Not one of my member companies believes this bill will
result in more development or put more oil in the
pipeline. On the contrary, we believe that forcing
companies to perform this intrusive exercise will do
nothing more than drive out the very explorers Alaska
is trying to attract.
Thank you for the opportunity to testify and I'm happy to
take any questions the committee may have.
SENATOR WIELECHOWSKI commented that maybe he could work with
AOGA to craft better language, because it was not his intent to
require plans of development like the ones a company must have
in getting a unit approved, but rather for a company to come
forward with some minimum work commitments and a timeframe. So,
you don't get speculators coming in and acquiring leases to just
hold on to them with no intention of developing.
CO-CHAIR PASKVAN asked her to submit written testimony. He also
noted that the DNR Division of Oil and Gas and Department of Law
were invited to testify.
4:52:53 PM
DAVID STONE, Mayor of Yakutat, Yakutat, AK, thanked the
committee for inviting him to testify on SB 209. He agreed with
developing our resources for the benefit of Alaskans, but he
said the state leases are not designed to be a stored value.
They are designed to be developed. Norway's model is you develop
in a reasonable time or the leases are null and void. There
should never be another Pt. Thomson - four decades and now the
state is spending a fortune on lawsuits trying to get the land
developed. Many small developers want to get on that land and
it's being tied up by the big three.
CO-CHAIR WAGONER thanked Mayor Stone for testifying.
CO-CHAIR PASKVAN said that concluded today's hearing on SB 209.
[SB 209 was held in committee.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| Northern Pipeline Agency Canada_SEN RES_03-26-2012.pdf |
SRES 3/26/2012 3:30:00 PM |