Legislature(1999 - 2000)
04/12/1999 03:12 PM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 spend. 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 commissioners. 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 annually. 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.