Legislature(1999 - 2000)

04/12/1999 03:12 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
            SB 134-WELL REGULATORY COST CHARGE/CONS TAX                                                                     
SENATOR PEARCE  explained  that SB 134, the  program receipts  bill,                                                            
repeals the existing  oil and gas conservation tax  and institutes a                                                            
stable  funding  source  to  assure the  Commission  is  capable  of                                                            
carrying out its  objective of protecting the public  interest.  Its                                                            
primary goal is  to ensure that no hydrocarbons are  wasted and that                                                            
operations are conducted  in a manner that provides maximum recovery                                                            
of the  resource.   The original  intent of the  Legislature  was to                                                            
have  the  oil  and gas  industry  pay  for  this  function  of  the                                                            
Commission  through the oil  and gas conservation  tax.  The  system                                                            
was adequate  in the past, but it  is no longer sufficient  to cover                                                            
the costs  associated  with the operation  of the  Commission.   The                                                            
conservation  tax  is directly  proportional   to deduction  with  a                                                            
formula  per barrel fee  rate.  The  work of  the Commission  is not                                                            
proportional  to  the production  of  oil and  gas.   Production  is                                                            
declining, but the work of the Commission is not.                                                                               
SB 134  creates a  program receipt  system in  which the  regulatory                                                            
cost charge is  directly associated with the total  volume of fluids                                                            
produced or injected.   This type of system more accurately reflects                                                            
the  factors   directly   associated  with   the  workload   of  the                                                            
Commission.  It would only  assess costs when there is production or                                                            
injection.  Exploratory  wells would not have that burden until they                                                            
begin  production.   It also  contains  a provision  to provide  for                                                            
recovery  of costs  associated  with  an investigation  or  hearing.                                                            
Those costs would  be allocated to the parties involved,  as opposed                                                            
to being allocated across all wells in production.                                                                              
SB 134 creates  a stable funding source that would  enable the AOGCC                                                            
to provide the  monitoring services necessary to protect  the future                                                            
of Alaska's interests.  She said she was unaware of the fact that as                                                            
of June 1 the AOGCC was  going to have to close its doors because of                                                            
a budget shortfall.   The Commission has not received  any money for                                                            
maintenance  of  their  building  in  at least  10  years  and  they                                                            
desperately  need  a new  roof  because  they  have leaks  that  are                                                            
causing them to cover their  desks with visqueen at night.  They are                                                            
concerned  about losing many  of the records  that they are  charged                                                            
with keeping by statute.                                                                                                        
The proposed  CS (N version  by Mr. Chenoweth)  changes language  on                                                            
page 2, line 18 to "calendar  year" because the industry reports are                                                            
done by  calendar year.   This  reflects the  legislature's and  the                                                            
AOGCC's  intent to  have the flexibility  to  assess the  regulatory                                                            
cost charge by field, pool, or well.                                                                                            
Also,  language on  page 4,  lines  11-17, contains  new  transition                                                            
language  that  will allow  them  to continue  the  regulatory  cost                                                            
charge until the new regulations take effect under SB 133.                                                                      
CHAIRMAN  HALFORD asked if  the new mechanism  would generate  about                                                            
$2.3 million per year while the old one generates about $1.5.                                                                   
SENATOR PEARCE  answered that the new mechanism could  generate more                                                            
than that.                                                                                                                      
Number 320                                                                                                                      
SENATOR  MACKIE moved  to adopt the  CS (LS0259/N  Chenoweth)  to SB
134. There were no objections and it was so ordered.                                                                            
COMMISSIONER CHRISTENSON,  Chairman of the AOGCC,  said their job is                                                            
to  watch the  subsurface  estate for  the State  of  Alaska and  to                                                            
settle  disputes on  property, etc.  The AOGCC controls  all  of the                                                            
drilling done in the State.   It also keeps track of all records for                                                            
the wells drilled in the  state since it started.  It keeps track of                                                            
production, voidage  and pressure of reservoirs.   It sets up all of                                                            
the rules for production  at Prudhoe Bay, the production limits that                                                            
provide  maximum  recovery  from  the  resource.    The  AOGCC  also                                                            
provides for the  inspection of rigs from a conservation  and safety                                                            
standpoint on  the North Slope. It inspects on the  Slope 24 hours a                                                            
day, seven  days a week,  checking drilling  rigs to make sure  they                                                            
meet  safety   requirements.    It   does  surface  and   subsurface                                                            
inspections  on safety  valves and  a secondary  blowout  prevention                                                            
system.    He  added  that Alaska  has  a  very  good  position  and                                                            
excellent  record regarding  the  amount of  wells  drilled and  the                                                            
amount of blowouts that  have happened with five gas blowouts in the                                                            
total time  drilling has  occurred in  Alaska and  no fluids  on the                                                            
tundra.  It believes the current systems are working.                                                                           
With the current budget  problems, the Commission has been forced to                                                            
give inadequate  attention to things  like reservoir management  and                                                            
inspections  for proper compliance.   The  budget mechanism  is very                                                            
important.   The current system  is set up  on a declining  scale so                                                            
AOGCC gets  less and less  money as production  goes down but,  more                                                            
importantly, it does not  represent the AOGCC's workload.  The wells                                                            
in the fields last 20-25  years and the Commission conducts numerous                                                            
operations  on them from  the time they are  spudded until  they are                                                            
closed out and abandoned.                                                                                                       
CHAIRMAN HALFORD  asked him what his plan was for  the month of June                                                            
if they didn't get a supplemental passed.                                                                                       
COMMISSIONER  CHRISTENSON   said  the  plan  was  to  be  the  least                                                            
interruptive  as possible to the total  scheme. The inspection  team                                                            
is on a three-week  schedule and accumulates  overtime and  actually                                                            
trades it in for comp time.   Because they are on that schedule, the                                                            
AOGCC  will have  to make  sure  it doesn't  have  an overtime  cost                                                            
impact on June  1.  They will change  their schedules on  the Slope.                                                            
On  June  4,  the  three   commissioners,  the  three  professional                                                             
engineers, and the four  inspectors will be put on leave without pay                                                            
status.   One lady  is on maternity  leave.   They will continue  to                                                            
receive  production  reports and  do the  data gathering  and  those                                                            
kinds of things.   The effect is that  no new work will be  going on                                                            
from June 4 until July 1.                                                                                                       
CHAIRMAN  HALFORD asked  what the plan  for the roof  is and  who is                                                            
responsible for it.                                                                                                             
COMMISSIONER CHRISTENSON  answered that they hadn't found anyone who                                                            
would  take responsibility  for it  and the  AOGCC's budget  doesn't                                                            
cover any maintenance.                                                                                                          
CHAIRMAN HALFORD  asked if they had  money, would they get  to spend                                                            
it or  would  DOT take  it and  then give  it to  the Commission  to                                                            
COMMISSIONER CHRISTENSON  said DOT would take if first and then give                                                            
it back.                                                                                                                        
Number 420                                                                                                                      
SENATOR  PEARCE  commented  that  the  building  is  in  a  part  of                                                            
Anchorage   that  is  unsafe  at   night  according  to   staff  and                                                            
CHAIRMAN  HALFORD  asked if  the AOGCC  would  move  its offices  to                                                            
another location if it had the financial resources.                                                                             
COMMISSIONER CHRISTENSON  said it would and that the  State needs to                                                            
make a decision  about that building, because it is  old and needs a                                                            
lot of work. It  doesn't meet any OSHA requirements  for ventilation                                                            
and the  boilers were  basically condemned  in 1996.   He thought  a                                                            
downtown location would be better.                                                                                              
CHAIRMAN  HALFORD  asked in  terms  of AOGCC's  workload,  what  Mr.                                                            
Christenson thought about the BP/ARCO merger.                                                                                   
COMMISSIONER  CHRISTENSON  replied there  is little  doubt that  all                                                            
State oversight  agencies  on oil  and gas have  benefited from  the                                                            
fact that the large operators  have been paying very close attention                                                            
to what the  others are doing.  He  thought the State would  have to                                                            
expand  its vigilance  to  watching  these activities.    He saw  an                                                            
addition to the inspection  force and another engineer.  He said the                                                            
driving force  behind the merger is  to reduce the production  costs                                                            
up there.                                                                                                                       
CHAIRMAN  HALFORD  asked  if $2.3  million  was  enough to  do  that                                                            
COMMISSIONER  CHRISTENSON  answered  there  would be  an  additional                                                            
requirement  for more  inspectors and  engineers.   They would  also                                                            
need contractual money to hire people with specific expertise.                                                                  
CHAIRMAN  HALFORD asked  if  this mechanism  is flexible  enough  to                                                            
generate  the  revenue  needed  if  they  get  the  program  receipt                                                            
authority in the budget document.                                                                                               
COMMISSIONER CHRISTENSON said it is.                                                                                            
Number 535                                                                                                                      
SENATOR  MAKCIE   moved  to  pass  CSSB  134(Res)  with   individual                                                            
recommendations.   There were no objections  and it was so  ordered.                                                            

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