Legislature(2023 - 2024)ANCH LIO DENALI Rm
08/02/2023 01:00 PM House LEGISLATIVE BUDGET & AUDIT
| Audio | Topic |
|---|---|
| Start | |
| Approval of Minutes | |
| Badami Royalty Modification | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
LEGISLATIVE BUDGET AND AUDIT COMMITTEE
Anchorage, Alaska
August 2, 2023
1:02 p.m.
MEMBERS PRESENT
Representative Ben Carpenter, Chair
Senator Bert Stedman, Vice Chair
Representative DeLena Johnson
Representative Sarah Vance
Representative Frank Tomaszewski
Representative Andy Josephson
Senator Lyman Hoffman
Senator James Kaufman
Senator Scott Kawasaki
MEMBERS ABSENT
Senator Bill Wielechowski
Representative Mike Cronk (alternate)
Senator Click Bishop (alternate)
COMMITTEE CALENDAR
APPROVAL OF MINUTES
BADAMI ROYALTY MODIFICATION
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
JOHN CROWTHER, Deputy Commissioner
Office of the Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Co-provided a PowerPoint presentation,
titled "Preliminary Findings and Determination Badami Royalty
Modification," dated 8/2/23.
DEREK NOTTINGHAM, Director
Division of Oil and Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Co-provided a PowerPoint presentation,
titled "Preliminary Findings and Determination Badami Royalty
Modification," dated 8/2/23.
JOHNNY MEZA, Commercial Section Manager
Division of Oil and Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Co-provided a PowerPoint presentation,
titled "Preliminary Findings and Determination Badami Royalty
Modification," dated 8/2/23.
CHALINDA WEERASINGHE, Commercial Analyst
Division of Oil and Gas
Department of Natural Resources
Juneau, Alaska
POSITION STATEMENT: Answered questions during the presentation
on the Badami royalty modification.
ACTION NARRATIVE
1:02:28 PM
CHAIR BEN CARPENTER called the Legislative Budget and Audit
Committee meeting to order at [1:02] p.m. Senators Hoffman,
Kaufman, Kawasaki, and Stedman (via teleconference) and
Representatives D. Johnson (via teleconference), Vance (via
teleconference), Tomaszewski (via teleconference), Josephson,
and Carpenter were present at the call to order.
^Approval of Minutes
Approval of Minutes
1:03:42 PM
CHAIR CARPENTER announced that the first order of business would
be the approval of minutes.
1:03:50 PM
SENATOR KAUFMAN moved that the Legislative Budget and Audit
Committee approve the minutes for the June 28, 2023, meeting, as
presented. There being no objection, the minutes were approved.
^Badami Royalty Modification
Badami Royalty Modification
1:04:15 PM
CHAIR CARPENTER announced that the final order of business would
be a presentation by the Department of Natural Resources (DNR)
on preliminary findings and determination of the Badami Royalty
Modification.
1:05:03 PM
JOHN CROWTHER, Deputy Commissioner, Office of the Commissioner,
Department of Natural Resources (DNR), before addressing the
presentation, noted that three respected scientists and
geologists that were part of the DNR family in the Division of
Geological and Geophysical Surveys passed away in a helicopter
accident while on duty. He acknowledged their work, sacrifice,
and contributions to the state. Their names, he said, were
Ronald Daanen, Justin Germann, and Tori Moore.
CHAIR CARPENTER expressed condolences on behalf of the
committee, adding that the members' prayers and thoughts were
with the families.
1:07:23 PM
MR. CROWTHER noted that in the history of the department,
royalties were rarely modified and there had been few instances
in which they were granted. He added that public comment and
feedback from the committee would be incorporated into the
preliminary decision. The intent of the Badami royalty
modification, he said, was to prologue the life of a field that
had been producing on the North Slope for some time; however, he
pointed out that, across its history, [the Badami oil field] had
struggled with production. He shared his belief that the
royalty modification would result in direct benefit in terms of
extending the field life and revenue to the State of Alaska.
Additionally, he highlighted a variety of important benefits to
the department, such as the position of the infrastructure and
the role it could play in future opportunities to develop and
maximize the value of state resources across the area.
1:08:55 PM
DEREK NOTTINGHAM, Director, Division of Oil and Gas, Department
of Natural Resources, directed attention to a PowerPoint
presentation [included in the committee packet], titled
"Preliminary Findings and Determination Badami Royalty
Modification." He began on slide 2 by offering an executive
summary, which read as follows [original punctuation provided]:
Savant Alaska, LLC, operator of the Badami Unit,
submitted a royalty modification application to DNR in
2021.
The application to reduce royalty is intended to
prolong the economic life of the unit as per barrel
costs were increasing due to declining production.
DNR engaged in an extensive review and analysis
process of confidential financial and production
information provided by the applicant.
DNR concluded that, absent additional production
from new drilling, increasing per barrel costs at
Badami would likely result in the unit reaching the
end of the economic field life.
DNR has recommended a royalty modification
mechanism based on monthly revenues.
DNR analyses showed that royalty modification
would extend the life of the field with an expected
increase in revenue to the State.
MR. NOTTINGHAM identified the field's remoteness and reservoir
complexity as challenges contributing to the decline in
production. He reiterated that the intent of the Badami royalty
modification was to extend the life of Badami, a field that
provided infrastructure with strategic value for future
operations on the North Slope. After conducting an extensive
analysis and review of confidential financial information
submitted in 2021, the division concluded that the royalty
modification should be granted. The DNR analysis showed that
the royalty modification would extend the life of the field by
six to seven months, which would provide the operators with
enough time to improve production and get the field "back in
shape" financially. He proceeded to slide 3, which offered an
outline of the presentation.
1:14:09 PM
SENATOR HOFFMAN asked whether the word "expected" would be
addressed in the presentation, inferring that [an "expected"
increase in revenue] could presumably leave [the forecast] open
to a decrease in revenue.
MR. NOTTINGHAM believed that it would be addressed in a future
slide.
1:14:52 PM
JOHNNY MEZA, Commercial Section Manager, Division of Oil and
Gas, DNR, resumed the presentation on slide 4, outlining the
relevant statutes to the royalty modification, which read as
follows [original punctuation provided]:
The commissioner: AS 38.05.180(j)(1)(B): may
provide modification of royalty "to prolong the
economic life of an oil or gas field or pool as per
barrel or barrel equivalent costs increase or as the
price of oil or gas decreases, and the increase or
decrease is sufficient to make future production no
longer economically feasible."
AS 38.05.180(j)(4)(B) "may not grant a royalty
reduction ? under 1(B) of this subsection...of less
than three percent ..."
The lessee needs to:
AS 38.05.180(j)(2): "make a clear and convincing
showing that a modification of royalty" meets the
statutory requirements and "is in the best interest of
the state."
AS 38.05.180(j)(3): The royalty modification
mechanism "? shall be based on a change in the price
of oil or gas and may also be based on other relevant
factors such as a change in production rate?"
1:16:55 PM
SENATOR KAWASAKI asked whether the request from Savant Alaska,
LLC for a royalty modification was transferrable to another
future company.
MR. MEZA confirmed that a transfer was possible; however, such a
transfer would not be automatic and must be requested through
the DNR commissioner.
SENATOR KAWASAKI shared his understanding that future price
projections were utilized in the oil valuation for a royalty
modification and asked whether the assessment was done as "a
point in time" analysis. Additionally, he asked whether a
larger company would have the same ability to request a
statutory royalty modification.
MR. MEZA answered yes, [AS 38.05.180] allowed any LLC on the
North Slope or Cook Inlet to make the request on the basis of
demonstrating that continuous production was no longer
economically feasible. He acknowledged that the applicant would
use the price forecast, which had a great impact on those
projections, adding that the department used a variety of
scenarios to account for that uncertainty.
1:19:13 PM
MR. MEZA continued the presentation on slide 5, which offered a
history of prior decisions made by DNR regarding the
modification of royalty rates. Of the nine formal applications
for royalty modifications, only three were granted, he said.
The rest were either withdrawn by the applicant or denied by the
department. He noted that only two of the three granted
applications came to fruition.
1:20:21 PM
MR. NOTTINGHAM directed attention to slide 6, which illustrated
the location of the Badami Unit relative to the North Slope
infrastructure. He highlighted the challenges associated with
the remoteness of the unit, noting that the field could only be
accessed by personnel via helicopter or airplane. The
transportation of heavy equipment was accomplished by barge or
ice road in the winter. He explained that the oil from Point
Thomson flowed through Badami to the main infrastructure, adding
that possible prospects to the south could potentially utilize
the available space in the pipeline at the Badami facility,
making the unit's location strategic to the North Slope.
1:22:09 PM
MR. NOTTINGHAM discussed the production history of Badami on
slide 7, which read as follows [original punctuation provided]:
Badami facilities designed for 35,000 barrels of
oil per day (bopd). Expected peak production was
30,000 bopd, but actual production declined to 1,400
bopdin 2003.
BP Exploration (Alaska) (BP) suspended operations
from 2003-2005 and 2007-2011.
Badami reservoir has always been challenging to
develop due to compartmentalization.
Historically shown very steep declines (around
1520% average; 3050% after periods of flush
production, gas lift, and perforations).
If not for B1-07 well in 2018, Badami may have
been at end of field life earlier.
MR. NOTTINGHAM described the graph on slide 7, explaining that
compartmentalization of the reservoir was causing the decline in
production. He commended the current operator, Savant Alaska,
LLC, for maintaining the field and keeping it in an "economic
state" amidst the rate of decline, which required difficult well
work and challenging operations. He estimated that current
production was around 1,000 barrels per day, noting that actual
production data had not come in and was not reflected on the
graph.
1:26:13 PM
CHAIR CARPENTER sought to understand the point at which Badami
would be economically feasible in terms of oil price and
production.
MR. MEZA detailed acreage and lease information on slide 8,
noting that the majority of leases had a royalty rate of 12.5
percent.
CHAIR CARPENTER sought to clarify that the modification of all
rates listed on slide 8 were being discussed.
MR. MEZA answered yes. He proceeded to slide 9, outlining the
department's analysis of Savant Alaska's application based on
statutory criteria, which read as follows [original punctuation
provided]:
The applicant made a clear and convincing showing
that the requested royalty modification meets the
requirements of AS 38.05.180.
Savant: Provided sufficient technical and
financial information per AS 38.05.180(j)(6)
DNR examined cash flows models, financial
statements, and production profiles; held multiple
meetings with Savant.
Savant provided DNR information both initially
and during the review and analysis process.
DNR kept apprised of changes in circumstances in
the unit.
Demonstrated the per-barrel costs increase will
make future production uneconomic per AS
38.05.180(j)(2)
The increase in per-barrel costs is mainly due to
declining production for current wells.
Lease operating expenditures and general and
administrative costs expected to remain relatively
constant and not change with production.
DNR reviewed current and historical data for
Badami to verify expectations for the short-term
future.
1:31:31 PM
SENATOR KAWASAKI asked whether the provision of technical and
financial information by the applicant was dependent upon the
company's size or wherewithal to produce oil.
MR. MEZA explained that by principle, the department mainly
analyzed the capability of the field in terms of production and
economic benefit. Other considerations, he said, were secondary
to that point.
1:32:47 PM
CHAIR CARPENTER asked how much of the economic analysis was
based on fixed costs versus price of oil and declining
production levels.
MR. MEZA acknowledged that it was an integral part of the
department's analysis. He explained that in terms of status quo
production, fixed costs played a significant part in the
company's operating costs. If future production were to come
into play, he said, fixed costs would no longer determine the
viability of the field.
1:34:44 PM
SENATOR STEDMAN requested the shut-in price, the break-even
point, and the price at which a royalty modification would no
longer be warranted.
MR. MEZA indicated that the sensitive financial and technical
information submitted by the applicant was, by statute, held
confidentially by the department. However, the "trigger point"
determining the reduction in the royalty rate would be shared in
future slides, providing an indication of what the department
considered a reasonable threshold to determine the extension of
the field's economic life.
SENATOR STEDMAN pointed out that the Senate Finance Committee
reviewed this type of information often when looking at the tax
structure of a future field. He questioned the range used by
DNR when dealing with royalties.
MR. CROWTHER conveyed, for context, that Badami was producing
approximately 1,000 barrels per day. The oil price had been
considered by the department at a variety of levels. He
explained that the proposed mechanics of the modification were
based on field revenue and field cost in a given month, adding
that the threshold and basis for the Badami proposal was set at
$1.4 million. When the revenues associated with the field
accounting for volume produced in addition to oil price - exceed
that threshold, the royalty modification, as proposed, would not
be triggered. Therefore, increasing production, improving the
fixed cost per barrel, or increased revenue would avoid
triggering the royalty modification, he said.
1:39:00 PM
CHAIR CARPENTER asked members to hold their questions until
after the presentation.
MR. MEZA resumed the presentation on slide 10, which continued
the analysis of Savant Alaska's application based on statutory
criteria as follows [original punctuation provided]:
Savant: Demonstrated that royalty modification
would prolong the economic life of Badami Unit per AS
38.05.180(j)(1)(B).
Savant application showed an extension of 1 to 3
months.
Savant proposed a royalty modification mechanism
that was based on production only.
It did not meet the requirement per AS
38.05.180(j)(3) because it did not include oil price.
DNR royalty modification expected to extend field
life by 6 to 7 months.
The modification mechanism is based on monthly
revenues.
DNR model accounted for multiple price,
production and possible shutdown scenarios.
Modification is in the best interests of the
State per AS 38.05.180(j)(2)
DNR modification extends life of field; generates
revenues, both State and local; offers indirect
benefits.
Savant application offered extension to field
life but did not result in increased revenues for the
State.
1:41:59 PM
MR. MEZA discussed the key results of 10 most likely scenarios
for price and production on slide 11. Based on historical
determinations, he said it was reasonable to believe that
operating costs would remain at the level consistent with the
current level of production under the status quo. The key
results read as follows [original punctuation provided]:
Field life expected to be extended on average by
6 to 7 months.
Highest expected extension was 10 months for most
likely scenarios.
In general, higher prices and more forward-
looking Savant shutdown horizons resulted in longer
extensions to field life.
Extension to field life accompanied by expected
increases in revenues to the State.
Average expected revenues to the State
approximately $145,000
Local governments expected to see an additional
$540,000 in property tax revenue.
MR. MEZA noted that the earliest shutdown without modification
was estimated to be August 2025, whereas February 2026 was the
earliest shutdown with modification. He calculated that on
average, the expected revenues to the state were approximately
$145,000 as a result of the extension. The figure of $145,000
was further split into two "buckets" for state revenue gains:
those related to the royalty and production tax directly
associated with the Badami field activity, and the estimated
savings from delaying pipeline tariff increases on the average
extension of 7 months, amounting to $518,000.
1:46:10 PM
MR. MEZA continued to slide 12, which detailed the estimated
savings from delaying pipeline tariff increases. Should the
Badami revenues fail to offset expenditures, the field could
potentially shut down, he explained, which would cease
throughput in the Badami pipeline and a portion of the Endicott
pipeline. Consequently, the absence of production from the
Badami field would lower the throughput for other pipelines,
leading to an increase in tariffs for the existing fields, such
as Point Thomson. Alternatively, extending the life of the
Badami field would extend production and higher throughput,
which would prevent or delay the increase in tariffs.
1:49:31 PM
MR. MEZA reviewed the modeled revenue results on slide 13, which
read as follows [original punctuation provided]:
On average, the State gains revenue in the modeled
scenarios
While royalty revenues are reduced as the royalty
rate is lowered, the State gains additional production
tax and property tax revenues.
Extending the life of Badami, and its production
throughput, delays pipeline tariff increases,
increasing State tax and royalty revenues on other
oil.
Overall, combined increases from tax and tariff
revenues more than offset reductions in royalty
revenue.
MR. MEZA calculated that the average state revenue was estimated
at $145,000. He highlighted the unquantified indirect benefits
on slide 14, which read as follows [original punctuation
provided]:
Other Developments Around Badami
Explorers have obtained strategic positions
around Badami: Lagniappe Alaska, LLC, Oil Search
(Alaska), LLC, and Balcony Natural Resources, Inc.
Extending field life and preserving existing
infrastructure may be beneficial for new developments.
DNR analysis shows that presence of oil and gas
infrastructure increases interest in surrounding lease
sales.
Any developments surrounding Badami may result in
increased throughput through the Badami pipeline
system, lowering tariffs.
1:51:50 PM
MR. MEZA continued to discuss unquantified indirect benefits on
slide 15, which read as follows [original punctuation provided]:
Future Investment Potential
Without new capital investment drilling, Badami
will be near the end of its economic field life.
Extending field life maintains options for
possible future development and delays dismantlement,
removal, and restoration (DR&R) costs; royalty relief
will phase out if revenues increase due to additional
drilling/production (price, etc.).
Environmental and Social Impacts
Extending the life of Badami potentially allows
for future exploration and development with less
additional infrastructure construction.
Savant has a proven track record of safety and
compliance at Badami; Savant has 20 employees at
Badami with additional contractors.
1:53:49 PM
MR. MEZA proceeded to slide 16, which outlined DNR's royalty
modification mechanism as follows [original punctuation
provided]:
DNR grants royalty reduction, via a mechanism
based on price and production (i.e., actual monthly
revenue generated by the sale of crude oil from
Badami).
Monthly Thresholds are based on projections for
lease operating expenses, field maintenance & supply,
general and administrative expenses, taxes, and
royalty payments, allocated monthly.
If Monthly Revenue is greater than or equal to
Monthly Threshold, then the royalty rate is unchanged.
Royalty rate reduced only if Badami:
Monthly Revenues is less than Monthly Thresholds
Royalty rate reduced so that the benefit from
royalty reduction plus the monthly revenue equals the
Monthly Threshold.
Minimum royalty rate is 3 percent.
Subject to routine DNR royalty audit.
MR. MEZA reminded the committee that the monthly threshold
represented the "trigger point" for revenues. The monthly
threshold for 2023 was $1.4 million, decreasing to $1.3 million
in 2024-2029.
1:55:55 PM
MR. MEZA concluded on slide 17 by describing the terms of the
proposed royalty modification, which read as follows [original
punctuation provided]:
Royalty modification will only apply to the seven
leases included in the Badami Unit.
DNR shall have the right to obtain expense
invoices & financial/accounting records from Savant
every six months.
DNR shall have the right, upon notice to Savant,
to terminate the royalty modification in whole or in
part.
Royalty modification shall expire on December 31,
2030, unless terminated previously by DNR.
Royalty modification may not be assigned by
Savant to another lessee without written approval of
DNR Commissioner.
Royalty modification shall not be applied
retroactively; commences on effective date of Final
Determination.
CHAIR CARPENTER invited questions from members of the committee.
1:57:24 PM
REPRESENTATIVE JOSEPHSON sought to confirm that DNR could
terminate the royalty modification at any time; however, he
assumed that the termination could not be arbitrary or
capricious.
MR. MEZA confirmed that the decision would not be made
arbitrarily. He alluded to the thresholds on slide 16,
reiterating that DNR would maintain its ability to review
invoices and analyze an outlook of "reasonable" expenditures for
the field based on the comparison of historical expenditures.
Should the expenditures be much lower than projected, DNR would
eventually find that in the audit, he said.
1:58:58 PM
SENATOR STEDMAN restated his prior request for the shut-in price
per barrel, opining that it shouldn't be a secret. He indicated
that the Dallas Federal Reserve published monthly shut-in prices
for its fields in Texas.
CHAIR CARPENTER asked why the shut in price was not included in
the presentation.
MR. MEZA confirmed that DNR had access to the applicant's
projected operating expenditures and production; however,
according to statute, the applicant had the ability to request
that the department keep that information confidential.
Nonetheless, he suggested that members calculate a dollar figure
by dividing the monthly threshold of $1.4 million by the
production rate of 1,000 barrels per day.
2:01:00 PM
CHAIR CARPENTER remarked, "Your suggestion to the public to go
find the data and do the math indicates to me that whatever data
point their using to come to a conclusion to answer that
questions isn't confidential."
MR. CROWTHER replied that the monthly threshold figure was not
confidential; however, it was the product of specific
confidential capital operating investments that were necessary
to keep the field operating. He added that [the threshold]
represented the distillation and conclusion of the confidential
information. Nonetheless, he shared his understanding that the
components could be generally extrapolated with simple math. He
shared an example in reference to the Dallas Federal Reserve, as
mentioned by Senator Stedman. He offered to provide, for the
public, a table of hypothetical prices of oil and the
corresponding volume of production to meet the threshold.
2:03:13 PM
CHAIR CARPENTER indicated that it was a good suggestion. He
speculated that although the price of oil could be easily
identified online, the public may have a hard time figuring out
the revenue of the company at any given time.
MR. CROWTHER agreed, he said the department would look to
provide that information and any final findings to educating the
public. He explained that the department wanted the royalty
modification to be sensitive to the price of oil. He pointed
out that low production volumes and high prices of oil could
lead to a scenario in which the field had revenues sufficient to
meet its fixed and operating costs. He added that DNR wanted to
have a structure in place that didn't disadvantage the state
royalty in those scenarios. He reasoned that the threshold
model, reviewed and calculated monthly, would take into
consideration the variability inherent to production and oil
price and protect both the department in high price environments
and the operator from shutting in the field. He characterized
the mechanism, as proposed, as an insurance policy to protect
both the operator and the state from down months and to extend
the life consistent with the statute while continuing to gain
other benefits in the interest of the state.
2:05:25 PM
SENATOR KAWASAKI recalled the Pioneer royalty modification in
2005, which was intended to get the field to an operative
status. He questioned whether it should be known that in the
future, the legislature would need to subsidize fields that were
less than producing and asked whether that would become typical
of future royalty modification requests.
MR. CROWTHER pointed out that the Badami application was
intended to extend the life of the field. He asked Mr. Meza to
list other [modification requests] in the same category.
MR. MEZA expounded, clarifying that [Badami] was the first time
this particular scenario was used in terms of the field
approaching its economic end of life. In general, he said, with
fields getting to a mature stage where additional production
avenues were declining, it was natural to expect that there
could be cases in which the life of the field needed to be
extended.
2:07:19 PM
SENATOR KAWASAKI said he wanted to make sure that, as fields
become less profitable in future years, the state was
consciously implementing a policy of taking on potential risk to
the treasury.
CHAIR CARPENTER conveyed that he had considered the implications
of a dwindling resource on state revenue many times. He
concluded that these conversations would continue if the desire
was to extend the finite resource.
2:08:17 PM
SENATOR STEDMAN asserted that royalty modification was a good
tool to extend field life; however, companies should be asked to
waive confidentiality if they want a contract modification.
Additionally, he suggested that the royalty modification option
should be integrated into the annual legislative updates on oil
and gas, adding that the Badami royalty modification could be
used as an example. He requested the tariff on Point Thomson
per barrel.
MR. MEZA replied that the tariff on the Point Thomson pipeline
was public. He estimated $18, noting that he could not recall
the exact number.
SENATOR STEDMAN asked for the tariff on Badami.
2:11:00 PM
CHALINDA WEERASINGHE, Commercial Analyst, Division of Oil and
Gas, DNR, responded that the tariff rate for Badami was $1.47.
2:11:31 PM
REPRESENTATIVE JOSEPHSON shared his understanding that, compared
to the other applications, Badami was an incredibly low risk
proposition. He asked whether that was accurate.
MR. NOTTINGHAM confirmed that the department viewed the proposal
as low risk with intangible benefits in terms of high future
revenue to the state.
2:12:43 PM
CHAIR CARPENTER asked whether there was any risk to the
throughput from Point Thomson if Badami were to shut in and
cease to produce.
MR. NOTTINGHAM believed that from a technical standpoint, there
was no significant risk to Point Thomson.
CHAIR CARPENTER returned to slide 11 and asked whether the
operator was on board with the modification proposal of a 6-to-
7-month extension. Specifically, he asked whether the operator
could pull the application, as other companies had done in the
past.
MR. NOTTINGHAM stated that the operator had submitted a letter
of support for the application.
2:15:18 PM
CHAIR CARPENTER shared his understanding that AS 38.05.180(j)(6)
authorized the Legislative Budget and Audit Committee to have
confidential data brought before the committee, which would
require an executive session. He noted that the committee was
not prepared to enter executive session today; however, he
advised members to notify him if there was a desire to review
confidential data in executive session at a later date.
REPRESENTATIVE JOSEPHSON inquired about the timeline and asked
whether the [Badami royalty modification] was time sensitive.
CHAIR CARPENTER clarified that there was no statutory
requirement for the Legislative Budget and Audit Committee to
approve the royalty modification. He added that the
presentation was informational only in an effort to keep the
public and the legislature informed of the administration's
decisions.
REPRESENTATIVE JOSEPHSON sought to confirm that Savant Alaska
would have to wait until January at the earliest.
CHAIR CARPENTER was unsure of the answer.
MR. MEZA stated that after August 13, 2023, the department would
review the comments and issue a publication of final findings.
Once the document was issued, a prospective effective date would
be provided.
2:18:50 PM
CHAIR CARPENTER returned to slide 11, pointing out that the
earliest shutdown [of the Badami field] without modification was
estimated to be August 2025. He asked whether that date was
confirmed by the operator, or whether it was an assessment by
the state.
MR. MEZA confirmed that the date was an assessment by the state
based on 10 most likely scenarios that were considered by the
department.
CHAIR CARPENTER pointed out that Savant Alaska submitted the
royalty modification request in 2021, and now that it was 2023,
he believed it was fair to ask when it would go into effect.
MR. CROWTHER agreed that it had been some time since the initial
application was filed, for which there were rationales on the
operator's side due to significant changes in corporate
ownership. Additionally, he shared that there was a challenge
with the B1-07 well, which affected [Savant Alaska's]
operational plans, as well as how the state was evaluating the
scenarios. He said the department aspired to address these
kinds of requests with alacrity and focus; however, with Badami,
a series of intervening events required additional analysis, due
diligence, and clear and convincing statutory standard to show
that the royalty modification was in the best interest of the
state. He pointed out that if a shutdown was perceived by the
department to be inevitable, modifying the royalty on the way
out might not be appropriate to earn final revenue from the
state. Fortunately, he said, DNR was not in that scenario.
2:22:29 PM
CHAIR CARPENTER invited final comment from the deputy
commissioner.
MR. CROWTHER thanked the committee for its insight and input,
adding that DNR would continue to go through the public process
and incorporate the feedback received today in any final
findings issued by the department.
CHAIR CARPENTER asked where the public could go to issue
comment.
MR. CROWTHER directed the public to the Division of Oil and
Gas's online portal. He deferred to Mr. Meza.
MR. MEZA added that the department issued a public notice on its
website, which could be found, along with an email address, by
searching the keywork "Badami" or "royalty modification."
CHAIR CARPENTER thanked the presenters and offered closing
remarks.
2:23:27 PM
ADJOURNMENT
There being no further business before the committee, the
Legislative Budget and Audit Committee meeting was adjourned at
[2:23] p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2023-07-07_Best Interest Findings_Preliminary_Savant Alaska, LLC_Royalty Modification.pdf |
JBUD 8/2/2023 1:00:00 PM |
DNR Presentation |
| 2023 08 02 LB&A DNR DOG Badami Royalty Modification Presentation (FINAL).pdf |
JBUD 8/2/2023 1:00:00 PM |
DNR Presentation |
| Badami Royalty Modification Request (002).pdf |
JBUD 8/2/2023 1:00:00 PM |
Applicant Modification letter |