Legislature(2011 - 2012)HOUSE FINANCE 519
03/16/2011 08:00 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB110 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 110 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 16, 2011
8:07 a.m.
8:07:04 AM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 8:07 a.m.
MEMBERS PRESENT
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas Jr., Co-Chair
Representative Anna Fairclough, Vice-Chair
Representative Mia Costello
Representative Mike Doogan
Representative Bryce Edgmon
Representative Les Gara
Representative David Guttenberg
Representative Reggie Joule
Representative Tammie Wilson
MEMBERS ABSENT
Representative Mark Neuman
ALSO PRESENT
Representative Mike Hawker; Senator Cathy Giessel; Bryan
Butcher, Commissioner, Department of Revenue; Joe Balash,
Deputy Commissioner, Department of Natural Resources; Bruce
Tangeman, Deputy Commissioner, Department of Revenue; Dan
Seamount, Commission Chairman, Alaska Oil and Gas
Conservation Commission.
PRESENT VIA TELECONFERENCE
Steve Davies, Sr. Petroleum Geologist, Alaska Oil and Gas
Conservation Commission; Frank Molli, Production Forecast
Consultant, Department of Revenue.
SUMMARY
HB 110 PRODUCTION TAX ON OIL AND GAS
HB 110 was HEARD and HELD in Committee for
further consideration.
HOUSE BILL NO. 110
"An Act relating to the interest rate applicable to
certain amounts due for fees, taxes, and payments made
and property delivered to the Department of Revenue;
relating to the oil and gas production tax rate;
relating to monthly installment payments of estimated
oil and gas production tax; relating to oil and gas
production tax credits for certain expenditures,
including qualified capital credits for exploration,
development, and production; relating to the
limitation on assessment of oil and gas production
taxes; relating to the determination of oil and gas
production tax values; making conforming amendments;
and providing for an effective date."
8:08:45 AM
BRYAN BUTCHER, COMMISSIONER, DEPARTMENT OF REVENUE,
initiated the PowerPoint presentation: "Fall 2010 Oil
Production Forecast."
Commissioner Butcher began with Slide 2: "Three Categories
for Forecasted Production."
1. Currently Producing- Includes base production and
enhanced recovery production from in rate enhancing
activities (perforations, stimulations, well
workovers, gas and water injection support).
2. Currently under Development- New projects that are
currently funded or awaiting project sanction in near
future.
8:12:03 AM
Commissioner Butcher discussed Slide 3: "Three Categories
of Forecasted Production.
3. Currently under Evaluation- Includes technically
viable projects in the stage where engineering, cost,
risk and reward are being actively evaluated. Unfunded
but are considered to have a high chance of being brought
to fruition.
8:12:52 AM
Commissioner Butcher discussed Slide 4: "Factors that
Affect Production Forecasting."
1. GEOLOGY
· Rock type and formation characteristics
· Depth, thickness, pressure
· Oil and gas characteristics (oil gravity,
viscosity, water content, etc.)
2. DEVELOPMENT PLAN
· Well density and development rate
· Well bore size and completion technique
· Artificial lift and enhanced oil recovery
· Facilities and surface operations
3. COMMERCIAL
· Project economics
· Oil price and market conditions
· Government Policy: access, regulation, taxation
4. PRODUCTION PROFILE
· History, stage of depletion
· Use production profile to extrapolate trends
5. TIMING!
Commissioner Butcher discussed Slide 5: "North Slope
Production Decline."
FY 1988: production peak -> 2.01 million barrels per
day (bpd).
FY 2010: production -> 644,000 bpd, a 68% decline
since peak.
FY 1988 to date: production decline rate ~ 5% per
year, on average.
Over the last 10 years, production decline rate ~ 4.2
% per year, on average.
We expect the decline rate to flatten out to 3.2 % per
year, on average, through FY 2030.
8:14:54 AM
Commissioner Butcher detailed the graph on Slide 6: "ANS
Production History and Forecast." The slide depicts the
forecast from 1977 with the sharp increase to approximately
2 million barrels in 1988. He pointed out the precipitous
decline through the 1990s. The largest producer is the
Prudhoe Bay field illustrated in yellow.
8:15:43 AM
Commissioner Butcher discussed Slide 7: "Forecasted ANS
Production FY 2010-2020. He noted that the area shaded
light gray indicates fields that are "currently producing."
The area continues to decline over the next ten years at
the same slope seen in the last ten years. The "under
development" portion is shown in darker grey while "under
evaluation" is illustrated in black and is the most
speculative of the three.
8:16:53 AM
Commissioner Butcher discussed Slide 8: "Conclusion on
Production."
· Production forecasting requires consideration of each
project's geology, development plans, commerciality,
production profiles, decline curves and timing.
· Department uses extensive well and field specific data
acquired from producers, AOGCC, and DNR.
· New field development is very important in mitigating
decline rates.
Vice-chair Fairclough asked if geologists expect a high
probability of oil in the fields. She asked for the opinion
of the department. She referred to North Slope production
decline illustrated in Slide 5 and the statement "We expect
the decline rate to flatten to approximately 3.2% per year,
on average through FY 2030. She wondered about the number
of barrels that are anticipated to flow through the line in
2030. Commissioner Butcher deferred the question to Frank
Molli.
FRANK MOLLI, PRODUCTION FORECAST CONSULTANT, DEPARTMENT OF
REVENUE, responded that the estimated production through
the pipeline in the year 2030 is 328,000 barrels of oil per
day.
Vice-chair Fairclough asked for an estimated price of oil
in 2030. Commissioner Butcher responded that the
department's estimates extend through 2020 only.
Co-Chair Stoltze asked for a projection of oil prices
needed to cover the budget growth. Mr. Molli offered to
provide the answer.
8:20:11 AM
Vice-chair Fairclough agreed that the throughput time's
price must be anticipated for the price of oil in the
future.
Representative Guttenberg asked about variables or
scenarios for a development plan.
JOE BALASH, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES responded that a plan of development is used to
describe the commitment made by the lessees to develop a
unit. A unit is comprised of a collection of leases that
contain common interest in the oil pool that lies beneath
them. The plan of development describes the pool and how it
will be developed and the timing for development. The plans
are submitted to the Department of Natural Resources (DNR)
when the unit is formed under the department's regulations.
When the unit is formed on non-state land, particularly
federal land, a different process is utilized with the
Bureau of Land Management (BLM).
Representative Guttenberg asked if influential variables
are viewed when a development plan is submitted. He
wondered about potential permitting problems, unnecessary
delays and potential mitigation of the issues.
Mr. Balash responded that the Division of Oil and Gas
contains a unit with a specific manager. The manager works
with the unit operator. The department elicits feedback to
improve the understanding of progress within the
reservoirs. He imagined that some units are simpler, as
they are small with a single owner. The larger and more
complex the reservoir the more effort required for
development of the field. The specific plans developed are
communicated between the individual unit managers and the
operator.
8:24:49 AM
Representative Guttenberg asked about the change in the tax
structure to incentivize development. He asked about the
development plan. He wondered about a forecast for the
potential change. Permitting often presents an issue. He
asked if other issues exist. Has industry behavior been
modified by a certain action in the past?
Commissioner Butcher stated an example of the heavy oil in
Ugnu. The economics of the oil are complex as it is very
expensive to produce the oil. Fields that are not currently
developed are affected by HB 110. The economics of the bill
would allow companies to view areas of production that
would not have been considered under the current tax
structure.
8:27:03 AM
Representative Gara asked about the Economic Limit Factor
(ELF) system allowed for a zero percent tax unless a field
was large and productive. He asked why a low tax rate would
work now when it was ineffective in the past. He added that
the North Slope had a historic price of $18 to $20 per
barrel through 2002, which increased substantially by 2006.
He wondered why the outcome would be different now if the
past indicated that a high price of oil coupled with a low
tax rate did not incentivize exploration. Commissioner
Butcher responded that despite the increase in oil prices
in 2006, the forecasted price of oil is much greater. The
level of industry expertise with the advent of horizontal
drilling makes exploration formerly difficult in 2006,
possible. He added that the industry must testify with a
compelling case that HB 110 will result in change.
8:30:53 AM
Co-Chair Stoltze commented that a meeting with the
producers is planned.
Representative Gara commented on newer fields that are more
difficult to develop. Newer fields require a smaller profit
margin. The current system accounts for the smaller profit
margin, as the tax rate is only on profits and $30 of
profit must be made before progressivity kicks in. He
pointed out that to make $30 of profit on a field with $50
lifting costs; progressivity will kick in at a much higher
price. Commissioner Butcher agreed, but stated that the
view presented is for the entire life of the field, making
it less likely for industry to seek development under the
current tax regime. Tax credits are of great benefit on the
front end, but the tax structure plays a larger role for
the long term.
Representative Gara pointed out that the charts illustrate
that the tax rate will not kick in until well over $100 per
barrel. Commissioner Butcher replied that the more
expensive the field, the higher the price of oil must be
for progressivity to kick in.
8:33:18 AM
Representative Doogan asked about Point Thompson. He
understood that the department had taken Point Thompson off
the list because of the legal dispute between the producer
and the state. Commissioner Butcher stated that the
forecast is two decades out. He suggested that Mr. Molli
provide the history.
Mr. Molli stated that Point Thompson expects minor
production in 2015 regardless of whether or not a gas line
is constructed. The Point Thompson production was included
in the "under evaluation" category, which is more
speculative than the "currently producing" or "under
development" categories.
Representative Doogan asked if the production in Point
Thompson was imminent prior to the dispute. Mr. Molli
responded that he provided the fall forecast beginning in
2009. He was unsure about the years prior.
8:35:44 AM
Representative Wilson asked if past forecasts were reviewed
prior to making future forecasts. Commissioner Butcher
responded that the department is aware of past forecasts,
but the awareness does not affect future forecasts. The
department's past forecasts have been optimistic. Delays
are imminent leading forecasts to appear optimistic.
Representative Wilson requested documentation regarding
past production forecast accuracy. Commissioner Butcher
offered to provide the requested information to the
committee.
BRUCE TANGEMAN, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE
informed that he had delivered responses to questions
including examples of projections versus actuals included
in the committee packet.
Representative Hawker acknowledged that forecasting was
historically optimistic. He pointed out that some areas
slated for exploration contain issues that are beyond the
control of the legislature. The federal policy currently
prevents some development. He wondered about the
rationalization about the probability of the degree of
optimism in the current projections. Mr. Molli responded
that the "under evaluation" layer proves the most
uncertain.
8:40:28 AM
Mr. Molli noted that Umiat was discovered in 1946 by the
Navy and has 12 wells drilled into the reservoir. Several
wells are productive. The current operator plans to explore
further leading to a high probability that the field will
produce further. He expressed uncertainty regarding Point
Thompson. Each project had its range of certainty.
Representative Hawker agreed about the substantial degree
of uncertainty in the foreword projection. He saw the
forecast as optimistic. He pointed out Slide 4 and the
factors affecting production forecasting. He opined that
one missing factor was the fundamental premise of the
availability of capital. Unlimited availability of
investment capital leads to vastly different circumstances.
He stated that the point had not been addressed to his
knowledge. He wondered if the degree of capital was
considered in the forecasting process.
8:43:28 AM
Mr. Molli answered that he did not consider the
availability of capital when forecasting oil production. He
imagined that the consideration was made by the operators.
Representative Joule requested additional information
regarding an effective tax rate. He requested a global
picture regarding incentives. He asked how much the
economic downfall impacted investment decisions regarding
resources.
8:47:06 AM
Commissioner Butcher responded that he would provide the
committee with an effective tax rate slide that accounts
for the credits. He was sure that the industry would
provide further insight. He pointed out that Alaska's
exploratory wells continue to drop, while exploration in
other states is rising.
Representative Costello questioned the accuracy of the
forecast. She informed that her staff had done research on
the topic of accuracy. Her staff calculated the average
error rates and applied them to the future. The findings
illustrate that in 2019, 343,000 barrels per day were
calculated compared to the forecasted 551,000 barrels per
day.
Representative Costello asked about the 3.2 percent decline
and the reason for the flattening curve. Commissioner
Butcher offered to provide the committee with the requested
information in graph form to offer a history of the
forecast's accuracy. He asked Mr. Molli to provide insight
regarding future production.
8:50:32 AM
Mr. Molli stated that new production will result from
Nikiachuk whose peak is anticipated by 2014 or 2015.
Liberty is another new field formerly anticipated to begin
in 2012, but since delayed. Alpine West was also delayed.
Representative Costello appreciated the department
providing the committee with the information.
8:52:31 AM
AT EASE
8:58:51 AM
RECONVENED
DAN SEAMOUNT, COMMISSION CHAIRMAN, ALASKA OIL AND GAS
CONSERVATION COMMISSION, introduced himself. He reported
serving with the industry in exploration for Marathon in
off-shore California. He noted that Mr. Davies is online.
He began his PowerPoint presentation "Alaska Oil and Gas
Conservation Commission (AOGCC) (copy on file).
9:01:09 AM
Mr. Seamount began with Slide 2: "Alaska Oil and Gas
Conservation Commission."
· AOGCC Mission
· Charts and Statistics
1. Historical O & G Activity
2. Drilling Permits (the Plan)
3. Drilled Wells and Well Work (the Actual Work)
· The Future
9:03:53 AM
Mr. Seamount discussed Slide 3: "Alaska Oil and Gas
Conservation Commission (AOGCC)"
Quasi-judicial State regulatory agency
-Oversight for underground oil and gas operations
· Private and public lands in Alaska
· Exercises police power of the state
Regulate drilling and production for oil, gas and
geothermal resources.
Mr. Seamount detailed Slide 4: "AOGCC Mission."
· Prevent waste of energy resources (Oil, Gas,
Geothermal)
· Promote greater ultimate energy resource recovery
· Protect underground fresh water from damage
caused by oil, gas, and geothermal operations
· Protect human safety
· Protect correlative rights
9:05:49 AM
Mr. Seamount discussed Slide 5: AOGCC Jurisdiction."
· Oil and gas resource development
· Geothermal resource development
· Underground storage of natural gas
· Metering accuracy for custody transfer
Mr. Seamount discussed Slide 6: "Types of AOGCC
Permits/Decisions."
· Drilling- 2300+ last 10 years
· Wellwork- 4000+ last 10 years
· Underground Injection (EOR, Waste disposal, Gas
Storage)- 46 last 10 years
· Special development considerations (dispute
adjudication, gas flaring, safety equipment, and
others)-67 last 10 years
Representative Doogan asked about the term "well work."
9:07:36 AM
Mr. Seamount offered to address the question later in the
presentation.
Mr. Seamount discussed drilling and well work and the
statistics involved in both.
Mr. Seamount joked about the nature of statistics.
9:09:52 AM
Mr. Seamount discussed Slide 7: "Development Timeline for
North Slope Oil Fields." He explained that three types of
wells exist: exploration wells, oil producer wells, and
service wells. Service wells are the enhanced oil recovery
wells, which inject fluids or gasses into the pools to
allow recovery of the resource. He pointed out that 29
percent of the field wells are service wells.
9:11:08 AM
Representative Gara commented on statistics showing that
exploration wells are declining while development wells are
increasing. He asked if a development well seeks to
maintain production or increase production of a field. Mr.
Seamount answered both; development wells maintain and
increase production. He added that well work includes work
done on existing wells to repair them or to increase
production.
Representative Gara stated that the mentioned chart was one
year behind. He wondered why companies are investing more
money in development wells than exploration wells. Mr.
Seamount replied that the requested trends and data will be
discussed later in the discussion. He could not speculate
on the industry's decisions. His experience was that
exploration was a result of oil price, although he admitted
that did not correlate in Alaska.
9:13:47 AM
Representative Hawker appreciated Slide 7. He interpreted
that the chart illustrated approximately 20 major
developments initiated during the Economic Limit Factor
(ELF) tax structure. Mr. Seamount concurred.
9:15:09 AM
Mr. Seamount added that the chart illustrates the lengthy
time that elapses between discovery and actual production.
Economics, permitting agencies, and litigation can all
delay the process.
9:15:56 AM
Representative Joule injected that the Coastal Zone
Management was also a player in the thriving industry.
Representative Hawker pointed out that none of the
mentioned 20 plus developments existed offshore.
Representative Doogan commented on the three types of
activity charted on Slide 7. He asked about the difference
between the discovery, limited regular production, and
regular production categories. Mr. Seamount responded that
limited production includes well testing.
Representative Doogan understood that many of the listed
wells lacked the limited production category. Mr. Seamount
agreed. He stated that when the infrastructure is present,
then the limited regular production category is
unnecessary.
9:18:33 AM
Mr. Seamount stated that the chart was compiled by Mr.
Davies.
Mr. Seamount introduced Slide 8: "Alaska Oil and Gas
Conservation Commission."
· AOGCC Mission
· Charts and Statistics
1. Historical O & G Activity
2. Drilling Permits (the Plan)
3. Drilled Wells and Well Work (the Actual Work)
· The Future
Mr. Seamount moved on to Slide 9: "Alaska Oil and Gas
Activity." The graph illustrates his agency's involvement
in Alaska since 1957. He stated that the blue curve
illustrates drilling permits processed by AOGCC. He noted a
drop in the curve around 1968 as a result of industry
leaving Cook Inlet for the newly discovered Prudhoe Bay. He
believed that Cook Inlet continued to hold vast potential
and has been sorely neglected since 1968.
Mr. Seamount pointed out the next great increase during the
development of Prudhoe Bay and Kuparuk. The activity
diminished in the mid 2000s. He added that the green curve
on the chart includes the number of active wells. An active
well is any well that the inspector must deal with.
Finally, the purple curve indicates the number of
reservoirs overseen and the plans of development that have
been approved.
9:21:45 AM
Representative Gara expressed confusion about the chart. He
asked if the blue dots signify wells or permits. Mr.
Seamount stated that the blue dots are permits processed.
The number of permits processed is similar to the number of
wells drilled and provides an accurate indicator of
activity.
Representative Gara asked if drilling wells are a
combination of exploration wells, service wells and
development wells. Mr. Seamount responded yes. He added
that the alternate energy wells in the form of geothermal
and underground coal gasification are also included.
Representative Gara noted that in 2010, roughly 2500
drilling wells existed. He asked if development and service
wells were plentiful. Mr. Seamount responded that the
number of well permits is 170, but the number of active
wells is 4500.
Representative Gara pointed out that the chart indicates
approximately 170 wells in 2010. Mr. Seamount replied that
the number of active wells is greater than 4500. An active
well is any well dealt with by inspectors; these may
include wells that are not producing. The number of
producing wells is greater than 2000.
9:25:05 AM
Representative Doogan commented on the number of permits.
He supposed that until 1984, production increased. He
commented on the sharp decline in permits in 1985. Another
rise is illustrated lasting until 1999 where yet another
sharp decline is shown. He asked to know the reason for the
declines. Mr. Seamount stated that 1999 provided an
anomaly. He did not have an explanation for the sharp
decline. He thought the question might be better asked of
industry. Representative Doogan asked again about 1985. Mr.
Seamount supposed that the major development of Prudhoe Bay
and Kuparuk had declined.
Mr. Seamount detailed Slide 10: "Alaska's Average daily Oil
and NGL Production Rate." He stated that Commissioner
Butcher had provided great detail about the slide earlier
in today's presentation. He noted the decline in Alaska's
production shown between 2000 and 2003 due to the
development of the Alpine and Northstar fields. Alpine was
the largest field discovered in the United States at the
time. He understood that two or three additional areas have
been discovered, but have yet to be developed.
9:28:19 AM
Representative Edgmon asked about developing technology and
horizontal drilling. He wondered whether an existing well
that utilizes the horizontal drilling technique would be
considered a development well. He wondered about
identifying the trends on the chart regarding the advent of
horizontal drilling and its effect on active wells. Mr.
Seamount responded that extended lateral drilling has been
used in Alaska since the early 2000s. The wells employing
lateral drilling are considered development wells. The
technology of horizontal drilling has improved greatly and
could open up additional resources.
Representative Edgmon stated that he was seeking
correlations between the advent of horizontal drilling and
the data provided on Slide 9. Mr. Seamount stated that he
was in the process of speculating that correlation.
9:31:09 AM
Vice-chair Fairclough asked if a correlation might be drawn
between the flattening of the blue line in 1999 on Slide 10
and the discovery on Slide 11. She wondered if explorers
were in the middle of processing instead of drilling or
bringing the production online. Mr. Seamount liked the
observation, and admitted that he had not considered the
idea.
Representative Gara wondered if the advent of horizontal
drilling would lead to the expectation of a lower number of
wells since each well reaches further. Fewer wells are
required to obtain a certain amount of oil. Mr. Seamount
stated that Representative Gara's observation was partially
correct. He added that one might encounter reserves
otherwise unseen.
Representative Gara asked if the Liberty field was affected
by a federal decision regarding drilling pad construction.
He asked if Mr. Seamount had confidence in the progression
of the field. Mr. Seamount did not know the answers.
9:33:43 AM
Vice-chair Fairclough asked a question about the graph on
Slide 9. She wondered if the blue dots signify permits, and
the green triangles indicate active wells. Mr. Seamount
agreed that the green triangles indicate active wells
requiring inspection. The wells indicated are not
necessarily producing wells.
Representative Guttenberg asked if one well is drilled with
five different horizontal directions, is it considered one
or five wells. Mr. Seamount replied five with one surface
hole.
9:35:56 AM
Mr. Seamount continued with Slide 11: "North Slope Average
Daily Oil and NGL Production Rate." He offered very little
commentary since Commissioner Butcher addressed the slide
earlier.
Mr. Seamount discussed Slide 12: "Alaska Oil and Gas
Conservation Commission."
· AOGCC Mission
· Charts and Statistics
1. Historical O & G Activity
2. Drilling Permits
Mr. Seamount discussed Slide 13: "Exploratory Well Permits
(1996-2010)." He mentioned the various participants with
approved permits. He noted the trends in exploration wells.
He highlighted 2010 where the majority of exploratory well
permits were for alternate energy permits for underground
coal gasification and geothermal.
Mr. Seamount highlighted Slide 14: "Exploratory Well
Permits (1996-2010) Statewide: Oil and Gas." He noted that
without the alternative energy permits in 2010 see a
drastic drop with only three exploration permits submitted.
Co-Chair Stoltze asked if the permits led to the source of
the one well discussed in committee. Mr. Seamount clarified
that the chart indicates permits applied for versus wells
drawn. He understood that one exploration well would be
drilled this year. Co-Chair Stoltze wished to amplify Mr.
Seamount's statement as exploration wells are the source of
much committee debate.
9:39:31 AM
Representative Doogan believed the chart illustrated two
well permits issued in 2010, neither by the major producers
on the North Slope. Mr. Seamount agreed and indicated that
the next slide would illustrate exploratory well permits.
Mr. Seamount turned to Slide 15: "Exploratory Well Permits
(1996-2010) Statewide: Oil and Gas." The chart illustrates
the wells drilled by the four large companies (Unocal,
Marathon, ConocoPhillips, and British Petroleum). He added
that zero permits were received in 2010 from the four major
producers. The drop off began in 2005 and decreased
steadily to zero in 2010.
Mr. Seamount discussed Slide 16: "Exploratory Well Permits
(1996-2010) Statewide: Oil and Gas." The slide removed the
four major producers and shows what other potential
investors planned for Alaska. The drop-off by the four
majors in 2002 was made up by newcomers for awhile.
9:41:35 AM
Vice-chair Fairclough queried Slides 15 and 16. She asked
about the price related to the big producers being drawn to
other markets with a higher rate of return. She questioned
the availability of drilling rigs on the North Slope and
when the particular overlay could be expected so that it
could be seen whether the situation was constrained by the
ability to access drilling rigs. Finally, she wondered if
permits were not being issued (like at Pt. Thompson) and
whether that might affect the situation. She understood
that ACES regulations were not significantly addressed
until the current year.
Mr. Seamount responded that he did not know the answer to
the questions. He thought the operators could answer. He
stated that the slides indicated an oil price curve; back
in the 1990s, the price of oil was $20 per barrel and in
2008 it was $130 per barrel. The price today at close to
$100 was still high. The numbers could be superimposed on
the curves; he did not see any correlation with oil price.
He noted that in the past, oil price was "king" and powered
the decision to drill wells. The impact did not seem the
same in Alaska.
9:44:04 AM
Representative Costello recalled a Forbes magazine article
which listed Alaska's North Slope as one of the top ten oil
provinces of the future. She asked about the difference
between the article and today's presentation. Mr. Seamount
asked Representative Costello to clarify her question.
Representative Costello clarified that she was unsure why
the interest in Alaska was waning when, from a geologist's
point of view a viable resource exists. Mr. Seamount stated
that as a geologist who has worked throughout the country,
he found the North Slope had the greatest hydrocarbon
potential. He recalled ten years ago when investment was
limited because of the high cost of doing business in
Alaska. He added that infrastructure costs limited the
interest as well.
9:46:23 AM
Representative Edgmon asked about requirements for
production of data regarding geothermal potential. He
wondered if the data was easy to produce. Mr. Seamount
stated that he will require production data from the
alternate energy exploration.
Representative Edgmon stated that the requirement did not
exist in the past. Mr. Seamount concurred.
9:47:37 AM
Representative Gara expressed concern regarding a policy
change using only one year of data. He commented that years
of little exploration were documented in the chart as far
back as 1996. He wondered why so few exploration wells were
drilled in those years. Mr. Seamount did not know.
Representative Gara asked why only two exploration wells
were slated for 2010.
Representative Hawker clarified that the number of approved
permits is listed on the left side of the graph. Mr.
Seamount agreed and noted three permits in 2010 and four in
1999.
Representative Gara recalled that Mr. Seamount expressed
confusion regarding the low number of permits in both 2010
and 1999. Mr. Seamount concurred.
Representative Gara commented on the high price of lifting
oil on the North Slope. He wondered if the high price along
with the high cost of infrastructure were ongoing
deterrents. Mr. Seamount did not know.
9:50:54 AM
Representative Doogan asked about off shore interest. Mr.
Seamount responded that areas greater than three miles
offshore are considered federal waters.
Representative Doogan understood that an evaluation of
prospectivity based on the likelihood of finding oil might
lead to offshore drilling.
Mr. Seamount responded that over twenty basins exist in
Alaska with the potential for oil and gas and only two
produced so far. He added that a couple of onshore places
have proven oil and gas, the National Petrochemical and
Refiners Association (NPRA) and Arctic National Wildlife
Refuge (ANWR).
Representative Doogan commented that Conoco is very close
to a potential offshore site.
Vice-chair Fairclough wondered about the producer's ten
year plans. She supposed that decisions about resources may
be shifting. She wondered if companies adopt profiles on
the decade as the census occurs every ten year. In 1999 and
2000 the big producers made management decisions.
9:54:09 AM
Representative Guttenberg commented on Slide 16 and the
green shaded for the Department of Interior. Mr. Seamount
responded that the Department of the Interior drilled a
number of coal bed methane exploration wells in the past
few years for a geological survey evaluating North Slope
and Aleutian potential.
Co-Chair Thomas wondered why HB 110 incentivizes the majors
as opposed to the independents. He opined that the
independent companies ought to be incentivized.
9:55:52 AM
Representative Hawker enjoyed the chart illustrated on
Slide 14 along with the stories that it tells. He mentioned
the highs and lows of oil prices illustrated. He noted a
precipitous decline in oil prices in 1998 and 1999 leading
to economic crisis in Alaska. He wondered if exploratory
drilling helped to extend the life of the Trans-Alaska
Pipeline System through the actual successful completion of
wells on the North Slope.
10:00:11 AM
Mr. Seamount expressed concern about the slow pace of
exploration.
HB 110 was HEARD and HELD in Committee for further
consideration.
ADJOURNMENT
The meeting was adjourned at 10:01 AM
| Document Name | Date/Time | Subjects |
|---|---|---|
| AOGCC HFIN Presentation031711.pdf |
HFIN 3/16/2011 8:00:00 AM |
HB 110 |
| HB11011 03 16 HFIN Production Forecast (FM) [Read-Only].pdf |
HFIN 3/16/2011 8:00:00 AM |
HB 110 HB1101 |
| HB110 AOGCC Replacement_Slide_9.pdf |
HFIN 3/16/2011 8:00:00 AM |
HB 110 |