Legislature(1995 - 1996)
02/14/1996 03:45 PM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
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.