Legislature(1997 - 1998)
04/07/1998 10:15 AM House O&G
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
April 7, 1998
10:15 a.m.
MEMBERS PRESENT
Representative Mark Hodgins, Chairman
Representative Scott Ogan
Representative Norman Rokeberg
Representative Joe Ryan
Representative Con Bunde
Representative Tom Brice
MEMBERS ABSENT
Representative J. Allen Kemplen
OTHER HOUSE MEMBERS PRESENT
Representative Jerry Sanders
COMMITTEE CALENDAR
* HOUSE BILL NO. 469
"An Act approving the sale of Prudhoe Bay Unit royalty oil by the
State of Alaska to Mapco Alaska Petroleum, Inc.; and providing for
an effective date."
- MOVED HB 469 OUT OF COMMITTEE
(* First public hearing)
PREVIOUS ACTION
BILL: HB 469
SHORT TITLE: APPROVE SALE ROYALTY OIL TO MAPCO
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
3/13/98 2620 (H) READ THE FIRST TIME - REFERRAL(S)
3/13/98 2621 (H) O&G, ECD, FINANCE
3/13/98 2621 (H) FISCAL NOTE (DNR)
3/13/98 2621 (H) HOUSE AND SENATE JOURNAL SUPPLEMENT
#16
3/13/98 2621 (H) CONTAINS FINDINGS, AGREEMENTS, &
3/13/98 2621 (H) RESOLUTION REGARDING ROYALTY OIL SALE
3/13/98 2621 (H) TO MAPCO
3/13/98 2621 (H) GOVERNOR'S TRANSMITTAL LETTER
3/31/98 (H) O&G AT 10:00 AM CAPITOL 124
3/31/98 (H) MINUTE(O&G)
4/07/98 (H) O&G AT 10:00 AM CAPITOL 124
WITNESS REGISTER
JOHN SHIVELY, Commissioner
Department of Natural Resources
400 Willoughby Avenue, 5th Floor
Juneau, Alaska 99801
Telephone: (907) 4532400
POSITION STATEMENT: Testified on HB 469.
KEVIN BANKS, Petroleum Market Analyst
Division of Oil and Gas
Department of Natural Resources
3601 C Street, Suite 1380
Anchorage, Alaska 99503
Telephone: (907) 269-8000
POSITION STATEMENT: Testified on HB 469.
ACTION NARRATIVE
TAPE 98-30, SIDE A
Number 0001
CHAIRMAN MARK HODGINS called the House Special Committee on Oil and
Gas meeting to order at 10:15 a.m. Members present at the call to
order were Representatives Hodgins, Ogan, Rokeberg, Ryan, Bunde and
Brice. Representative Ryan arrived at 10:16 a.m.
HB 469 - APPROVE SALE ROYALTY OIL TO MAPCO
Number 0016
CHAIRMAN HODGINS announced the committee would hear HB 469,
"An Act approving the sale of Prudhoe Bay Unit royalty oil by the
State of Alaska to Mapco Alaska Petroleum, Inc.; and providing for
an effective date."
Number 0032
JOHN SHIVELY, Commissioner, Department of Natural Resources stated
that the basic terms of the contract with Mapco is that it is a
five year contract starting on December 1 of this year and ending
on December 31, 2003. They have chosen that date because there is
an existing contract that ends in 2003 and therefore both contracts
will end together. He stated that quantity is based on a
percentage of Prudhoe Bay production, as they are selling out of
Prudhoe Bay. He stated that the percentage varies from 27 percent
to 33 percent which was designed to have an annual volume of 2,800
barrels. He stated that there is a weighted average price based on
royalty value and they are required to get at least what they would
get if they took royalty in-value instead of in-kind. He stated
that 15 percent extra has been added on that, as they always try to
get a little bit extra per barrel in order to meet the policy set
by the legislature. He stated that there is no price reopener, if
the price changes they either have to accept the new price or
terminate the contract. He pointed out that there is a security
set up for a letter of credit for 75 days that would protect the
state if Mapco were to decide to stop taking the oil. There is a
provision that states they can reduce the letter of credit if they
find a back-up buyer for the oil. He stated that there is a
requirement that at least 80 percent of it is refined in state and
there is a local hire provision that contains the same language as
in the North Star deal. He stated that they have made a best
interest finding that deals with the socio-economic and
environmental effects, as required. He stated that the royalty
board unanimously endorsed it and received public comment as well.
Number 0345
REPRESENTATIVE JOE RYAN asked why is it only 80 percent in-state
refining.
Number 0355
KEVIN BANKS, Petroleum Market Analyst, Division of Oil and Gas,
Department of Natural Resources, stated that in the past there has
only been one existing contract where all of oil is required to be
processed in state. He pointed out that since the mid-80's,
contracts that have been negotiated with in-state refineries have
set 80 percent as the number because there is a certain amount of
commercial flexibility allowed under that. He stated that in the
winter time production in the North Slope is at its highest and
lower in the summer, but the demand is the exact opposite. He
stated this would give the flexibility to replace those volumes in
the summertime when they are short.
Number 0432
REPRESENTATIVE RYAN asked when the residual oil is put back in the
pipeline does that oil no longer belong to Mapco and is given back
to state.
Number 0500
MR. BANKS replied that the oil that goes throughout the refinery is
borrowed or rented and they have the arrangements with several
North Slope Producers to take the oil that they extract and use for
products, which is the oil that we are selling them. The oil that
is returned, Mapco pays the quality bank plus (Indisc. -- paper
ripping) to those who provide the rental service for the use of
that oil. He stated that 210,000 barrels pass throughout the
refinery every day but about 67,000 barrels will actually be made
into product.
Number 0650
REPRESENTATIVE RYAN asked who owns this residual oil that leaves
Mapco but goes back in with other oil that is not residual, gets
mixed and increases in value.
Number 0669
COMMISSIONER SHIVELY responded the producers own that oil.
Number 0689
JEFF COOK, Vice President, External Affairs, Mapco Alaska
Petroleum, stated that the contract will enable and expand the
partnership between Mapco and the state of Alaska. He stated that
it is a value-added effort that will take additional Alaska crude
oil and refine it into 14,000 barrels a day into additional jet
fuel, which is what the state is currently importing. It will also
provide an additional 3,000 barrels of diesel and the crude will be
refined in a new $70 million expansion. He stated that they are
moving forward for 100 percent Alaskan hire for the product. The
new unit is a stand alone unit and it can only make jet and diesel
fuel.
Number 0880
REPRESENTATIVE RYAN asked if the quality bank contribution that
Mapco makes reflects the spread between what North Slope Crude is
verses what Number 6 Bunker fuel would be, or the equivalent of
residual oil.
MR. COOK replied that what is put back in is not the equivalent to
bunker oil but there is a complex formula for the quality bank.
The Federal Energy Regulatory Commission concluded a hearing to
adjust and make sure that was a fair quality bank penalty
mechanism. He stated that the conclusion was the quality bank does
equalize the quality of the crude oil through the payment. Last
year, Mapco paid $30 million which equaled to 5 cents a gallon for
refined products.
Number 1035
REPRESENTATIVE TOM BRICE made a motion to move HB 469, with
individual recommendations and attached fiscal note.
Number 1055
CHAIRMAN HODGINS asked if there was an objection. Hearing None, HB
469 moved out of the House Special Committee of Oil and Gas.
ADJOURNMENT
Number 1067
CHAIRMAN HODGINS adjourned the House Special Committee on Oil and
Gas meeting at 10:25 a.m.
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