Legislature(2003 - 2004)
04/29/2003 03:20 PM House O&G
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
April 29, 2003
3:20 p.m.
MEMBERS PRESENT
Representative Vic Kohring, Chair
Representative Hugh Fate
Representative Jim Holm
Representative Harry Crawford
Representative Beth Kerttula
MEMBERS ABSENT
Representative Lesil McGuire
Representative Norman Rokeberg
OTHER LEGISLATORS PRESENT
Representative Cheryll Heinze
COMMITTEE CALENDAR
HOUSE BILL NO. 246
"An Act relating to the limitation on upland acreage that a
person may take or hold under oil and gas leases; and providing
for an effective date."
- MOVED HB 246 OUT OF COMMITTEE
HOUSE BILL NO. 277
"An Act relating to the powers of the Regulatory Commission of
Alaska in regard to intrastate pipeline transportation services
and pipeline facilities, to the rate of interest for funds to be
paid by pipeline shippers or carriers at the end of a suspension
of tariff filing, and to the prospective application of
increased standards on regulated pipeline utilities; allowing
the commission to accept rates set in conformity with a
settlement agreement between the state and one or more pipeline
carriers and to enforce the terms of a settlement agreement in
regard to intrastate rates; and providing for an effective
date."
- SCHEDULED BUT NOT HEARD
PREVIOUS ACTION
BILL: HB 246
SHORT TITLE:OIL & GAS AUDITS & ACREAGE LIMITS
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
04/04/03 0783 (H) READ THE FIRST TIME -
REFERRALS
04/04/03 0783 (H) O&G, RES
04/04/03 0783 (H) FN1: INDETERMINATE(DNR)
04/04/03 0784 (H) GOVERNOR'S TRANSMITTAL LETTER
04/24/03 (H) O&G AT 3:15 PM CAPITOL 124
04/24/03 (H) Scheduled But Not Heard
04/29/03 (H) O&G AT 3:15 PM CAPITOL 124
WITNESS REGISTER
MARK MYERS, Director
Division of Oil & Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Presented HB 246 and answered questions.
MARK HANLEY, Public Affairs Manager, Alaska
Anadarko Petroleum Corporation
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 246.
ACTION NARRATIVE
TAPE 03-19, SIDE A
Number 0001
CHAIR VIC KOHRING called the House Special Committee on Oil and
Gas meeting to order at 3:20 p.m. Representatives Kohring,
Holm, Fate, Crawford, and Kerttula were present at the call to
order. Also present was Representative Heinze.
HB 246-OIL & GAS AUDITS & ACREAGE LIMITS
Number 0079
CHAIR KOHRING announced that the only order of business would be
HOUSE BILL NO. 246, "An Act relating to the limitation on upland
acreage that a person may take or hold under oil and gas leases;
and providing for an effective date." [HB 246 was sponsored by
the House Rules Standing Committee by request of the governor.]
Number 0118
MARK MYERS, Director, Division of Oil & Gas, Department of
Natural Resources, explained that HB 246 recognizes changes in
the state's oil and gas leasing programs and changes in the view
of economics relating to some Interior basins and other areas.
Now there is an expanded leasing program, he reported, with much
more interest by traditional North Slope explorers and
developers and by newer "independents" that have picked up a
sizable amount of acreage.
MR. MYERS noted that current state law limits a company to
500,000 acres of onshore non-unitized acreage. He said he
believes the purpose of that well-thought-out law was to ensure
a competitive environment in which no one company dominates
Alaska's oil and gas industry. Along with increased interest in
Interior basins since [enactment of that law], however, two new
programs have been passed. One, exploration licensing, allows a
company to pick up to 500,000 acres with a license that later
can be converted to a lease if the work commitments are met.
Thus a company with a single exploration license in an Interior
basin might use its entire statewide accumulation in converting
to leases, which would make that company ineligible to "play in
other areas." Under that program, the exploration-related
economics aren't seen as being highly linked from basin to
basin, Mr. Myers said, "so we don't see the competitive issue
there that would exist, ... say, on the central North Slope."
MR. MYERS reported that the other new program is the shallow gas
leasing program, under which a company can get up to 100,000
acres that would count against the company's statewide
accumulation [limit], an aggregate of 500,000 [acres]. He told
members:
We think a larger number is more appropriate. We do
understand the original intent, ... we believe, of the
500,000 acres to the North Slope. To that end, the
incremental change in the bill is to increase that
number from 500,000 to 750,000; so, incrementally, a
company could pick up 250,000 acres. But there's a
catch: no more than 500,000 acres can be on ... the
traditional North Slope, and we picked the Umiat
[Meridian] baseline.
Number 0350
MR. MYERS pointed to a map on the wall and mentioned areas where
traditional state lands for oil and gas [development] have been.
He explained:
We don't particularly want to see an additional
concentration of ownership in that area, in
particular, but in other areas south of that line, we
think it's appropriate, again, because of the
geological distinctness in the basin, the large amount
of state land available, and the desire to see more
exploration licenses and more leasing ... under the
shallow gas program, in addition to potentially more
leasing on shore in [the] Cook Inlet area.
... We think this falls within the intent of the
original 500,000-acres [limit] but expands it and
creates better opportunities. We also know that
several of our explorers and developers are near or at
the 500,000-acre limit, which prohibits them or limits
their ability to be able to purchase leases or
licenses south of that line. So, again, we're trying
to expand the ability of current companies that are at
or near their limit and encourage companies to pick up
maybe two exploration licenses - those sorts of things
- which they [may] convert to leases.
Number 0439
REPRESENTATIVE HOLM asked what non-unitized acreage is.
MR. MYERS answered:
Under state law, once production starts, basically,
almost all the production from the state is ... in oil
and gas units. An oil and gas unit's an aggregate of
leases put together either for joint exploration or
development. The unit then ... typically extends the
primary term of the lease, but also has work-
commitment requirements. ... The primary term of a
lease is basically for the initial exploration phase.
Once you find something, our lease is [for] either
seven- or ten-year periods. You're going to go well
beyond that primary period in the production. So
there needs to be a mechanism, first of all, to hold
those leases.
Finally, our oil fields are typically much larger than
a single lease. So you want to produce that in
common, through common facilities, to maximize
production and to maximize performance of the
reservoir as well. So, to do that, the leases are
aggregated together, formed into what's called a unit,
which holds those leases beyond their primary terms
... as a net operation.
There's typically a single unit operator, then, and a
single set of facilities, and then multiple well pads
drilling into that unit. So ... it's sort of an
economic and a physical unit designed to extend the
leases, but also to see aggregate production. The
unit must be based on the underlying geology, and the
work commitment must be appropriate to developing
[the] underlying resources.
And then, ultimately, units contract to ... very close
to the size of the actual reservoir, ... what's called
a participating area. So units initially start out
larger; they can, from that point, either contract
down to the size of the reservoir or expand as
additional reservoirs that are produced through those
common facilities are found and discovered. But they
(indisc.) by production, so those ... leases within
those units are exempt from the 500,000-acre limit.
Number 0608
REPRESENTATIVE KERTTULA asked how many companies are at or near
the 500,000 acres right now and whether any companies have come
forward saying they feel they are being precluded or that this
will result in too much acreage in one company's hands.
MR. MYERS highlighted the four major players currently. He said
right now the companies at or close to the limit are Anadarko
[Petroleum Corporation] and Petro-Canada; under the limit, but
not significantly so, is ConocoPhillips [Alaska, Inc.]. Noting
that BP at one time was [near or at the limit], he said, "Of
course, with their divestiture, it's probably not an issue." He
went on to say:
As far as concerns, I think legitimately people can be
concerned with owning too much acreage in a single
basin. ... And we're trying to increase competition in
areas south of the Umiat [Meridian] baseline. So
there may be some companies that might oppose this if
they see this as creating more competition in that
area.
There's also, clearly, a philosophy that we need to
accelerate development, and by allowing more acreage,
there is a counterargument saying that you might defer
people from developing their existing acreage by
letting them acquire more, or diluting their potential
capital for exploration in that area.
The counterargument to that is, ... I think I agree
with that on the central North Slope, [but] moving to
these new areas, you need a large amount of acreage;
that's what that exploration license is about, because
you have no proven potential in those areas, and ...
you need a core baseline to build the infrastructure
to produce those hydrocarbons. So you need a
significant quantity of oil and gas in that area. And
to do that, you have to acquire a lot of acreage and
[do a lot of] exploration to do it.
As a basin matures, that changes. ... In a mature,
producing area, maybe ... the number would be too
large. But in frontier basins, where clearly we're
trying to attract capital - like in our license areas,
for example, Nenana basin - a company needs to be able
to acquire a substantial position to justify the
exploration capital, the risk, and then to capitalize
a significant quantity of oil or gas.
Number 0801
MARK HANLEY, Public Affairs Manager, Alaska; Anadarko Petroleum
Corporation, told members he'd like to echo Mr. Myers'
testimony. He said Anadarko Petroleum Corporation is supportive
of the bill and appreciates its introduction by the governor.
He acknowledged that his company is approaching and is right at
the 500,000-acre limit. He noted that the foothills [of the
North Slope], in particular, has large areas that haven't been
explored for a long time, and said [a company] can use up a lot
of its acreage just trying to understand what might be there.
Number 0861
CHAIR KOHRING asked Mr. Hanley whether he thinks the 750,000
acres is a good number for the limit.
MR. HANLEY said he thinks it is reasonable.
CHAIR KOHRING noted that he hadn't asked Mr. Myers how that
number was chosen.
Number 0883
CHAIR KOHRING asked whether anyone else wished to testify and
then closed public testimony.
Number 0911
REPRESENTATIVE FATE moved to report HB 246 out of committee with
individual recommendations and the accompanying zero fiscal
note. There being no objection, HB 246 was reported from the
House Special Committee on Oil and Gas.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Oil and Gas meeting was adjourned at
3:31 p.m.
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