Legislature(1995 - 1996)

02/14/1996 03:45 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
           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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