Legislature(2021 - 2022)BARNES 124

03/19/2021 01:00 PM RESOURCES

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 98 FOREST LAND USE PLANS; TIMBER SALES TELECONFERENCED
<Bill Hearing Canceled>
+ HB 115 AQUATIC FARMING & HATCHERY SITE LEASES TELECONFERENCED
Heard & Held
-- Invited & Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 81 OIL/GAS LEASE:DNR MODIFY NET PROFIT SHARE TELECONFERENCED
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         March 19, 2021                                                                                         
                           1:04 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Josiah Patkotak, Chair                                                                                           
Representative Grier Hopkins, Vice Chair                                                                                        
Representative Zack Fields                                                                                                      
Representative Calvin Schrage                                                                                                   
Representative Sara Hannan                                                                                                      
Representative Mike Cronk                                                                                                       
Representative Ronald Gillham                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative George Rauscher                                                                                                  
Representative Tom McKay                                                                                                        
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 115                                                                                                              
"An Act  relating to  aquatic farming  and hatchery  site leases;                                                               
and requiring  the director of  the division of lands  to provide                                                               
the  legislature  with  an  annual  report  relating  to  aquatic                                                               
farming and hatchery site leases."                                                                                              
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
HOUSE BILL NO. 81                                                                                                               
"An Act authorizing the commissioner of natural resources to                                                                    
modify a net profit share lease."                                                                                               
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 115                                                                                                                  
SHORT TITLE: AQUATIC FARMING & HATCHERY SITE LEASES                                                                             
SPONSOR(s): REPRESENTATIVE(s) STORY                                                                                             
                                                                                                                                
02/24/21       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/24/21       (H)       FSH, RES                                                                                               
03/04/21       (H)       FSH AT 11:00 AM GRUENBERG 120                                                                          
03/04/21       (H)       Heard & Held                                                                                           
03/04/21       (H)       MINUTE(FSH)                                                                                            
03/09/21       (H)       FSH AT 11:00 AM GRUENBERG 120                                                                          
03/09/21       (H)       Moved HB 115 Out of Committee                                                                          
03/09/21       (H)       MINUTE(FSH)                                                                                            
03/10/21       (H)       FSH RPT 7DP                                                                                            
03/10/21       (H)       DP: VANCE, STUTES, STORY, MCCABE,                                                                      
                         KREISS-TOMKINS, ORTIZ, TARR                                                                            
03/19/21       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
BILL: HB  81                                                                                                                  
SHORT TITLE: OIL/GAS LEASE:DNR MODIFY NET PROFIT SHARE                                                                          
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
02/18/21       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/18/21       (H)       RES, FIN                                                                                               
03/05/21       (H)       RES AT 1:00 PM BARNES 124                                                                              
03/05/21       (H)       Heard & Held                                                                                           
03/05/21       (H)       MINUTE(RES)                                                                                            
03/10/21       (H)       RES AT 1:00 PM BARNES 124                                                                              
03/10/21       (H)       Heard & Held                                                                                           
03/10/21       (H)       MINUTE(RES)                                                                                            
03/17/21       (H)       RES AT 1:00 PM BARNES 124                                                                              
03/17/21       (H)       Heard & Held                                                                                           
03/17/21       (H)       MINUTE(RES)                                                                                            
03/19/21       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
REPRESENTATIVE ANDI STORY                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  As prime sponsor, presented HB 115.                                                                      
                                                                                                                                
GREG SMITH, Staff                                                                                                               
Representative Andi Story                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  On behalf of prime sponsor Representative                                                                
Story, presented the Sectional Analysis on HB 115.                                                                              
                                                                                                                                
CHRISTY COLLES, Division Operations Manager                                                                                     
Division of Mining Land and Water                                                                                               
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided information and answered questions                                                              
during the hearing on HB 115.                                                                                                   
                                                                                                                                
HEATHER MCCARTY, Chair                                                                                                          
Mariculture Task Force                                                                                                          
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of HB 115.                                                                          
                                                                                                                                
ERIC WYATT, President                                                                                                           
Alaska Shellfish Growers Association                                                                                            
Craig, Alaska                                                                                                                   
POSITION STATEMENT:  Testified in support of HB 115.                                                                          
                                                                                                                                
RYAN FITZPATRICK, Commercial Analyst                                                                                            
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided  information and answered questions                                                             
during the hearing on HB 81.                                                                                                    
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:04:21 PM                                                                                                                    
                                                                                                                                
CHAIR  JOSIAH  PATKOTAK  called   the  House  Resources  Standing                                                             
Committee meeting to order at  1:04 p.m.  Representatives Fields,                                                               
Hopkins,  Schrage,  Hannan,  Gilham,  Cronk,  and  Patkotak  were                                                               
present at the call to order.                                                                                                   
                                                                                                                                
         HB 115-AQUATIC FARMING & HATCHERY SITE LEASES                                                                      
                                                                                                                                
1:05:31 PM                                                                                                                    
                                                                                                                                
CHAIR PATKOTAK announced  that the first order  of business would                                                               
be HOUSE  BILL NO. 115  "An Act  relating to aquatic  farming and                                                               
hatchery site leases; and requiring  the director of the division                                                               
of  lands  to  provide  the legislature  with  an  annual  report                                                               
relating to aquatic farming and hatchery site leases."                                                                          
                                                                                                                                
1:05:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ANDI STORY,  Alaska State  Legislature, as  prime                                                               
sponsor, presented the  sponsor statement for HB  115, which read                                                               
as follows [original punctuation provided]:                                                                                     
                                                                                                                                
     House  Bill 115  simplifies the  Department of  Natural                                                                    
     Resources  (DNR)  lease  renewal  process  for  aquatic                                                                    
     farms  to  support  Alaska's aquaculture  sector  while                                                                    
     reducing administrative  overhead. Examples  of aquatic                                                                    
     farm   products  include   oysters,  kelp,   and  other                                                                    
     shellfish. HB115  makes the aquatic farm  lease renewal                                                                    
     process consistent  with the renewal process  for other                                                                    
     DNR  leases such  as agricultural  grazing, cabins  and                                                                    
     lodges,  fish   processing  docks,   and  hydroelectric                                                                    
     facilities.  HB 115  does  not  affect salmon  hatchery                                                                    
     leases.                                                                                                                    
                                                                                                                                
     If  enacted, HB115  would  expedite  the lease  renewal                                                                    
     process  lowering the  risk  for businesses  investment                                                                    
     and  reducing the  workload of  an overstretched  state                                                                    
     agency.                                                                                                                    
                                                                                                                                
     Current statute  requires DNR  to approve  both initial                                                                    
     and  renewal   aquatic  farm  leases  using   the  same                                                                    
     process,  called a  "945  authorization" (referring  to                                                                    
     the adjudication process found  in AS 38.05.945), which                                                                    
     takes around  200 days. HB115 would  allow aquatic farm                                                                    
     or hatchery renewals  to be renewed in  the same manner                                                                    
     as  most  DNR  leases  like those  listed  above.  This                                                                    
     optional process  allows the  Director of  the Division                                                                    
     of  Mining, Land  and  Water  to renew  a  lease for  a                                                                    
     business  in good  standing and  takes around  90 days.                                                                    
     Applied    to   aquatic    businesses,   this    option                                                                    
     significantly  shortens   the  renewal   process  while                                                                    
     continuing appropriate regulatory  oversight and public                                                                    
     engagement.                                                                                                                
                                                                                                                                
     HB115 also requires DNR to  submit an initial report on                                                                    
     the backlog  of pending aquatic farm  and hatchery site                                                                    
     lease  applications,   estimate  economic   impacts  of                                                                    
     pending   leases,  and   provide  recommendations   for                                                                    
     streamlining  the  lease approval  process.  Subsequent                                                                    
     annual  reports would  detail  the application  backlog                                                                    
     and list  the number of leases  renewals that underwent                                                                    
     the time-intensive lease renewal process.                                                                                  
                                                                                                                                
     This bill  makes clear  ecotourism and  educational use                                                                    
     of sites is allowed,  and explicitly prohibits DNR from                                                                    
     charging   additional  fees   for  persons   using,  or                                                                    
     traversing, land leased for  aquatic farms and hatchery                                                                    
     sites.                                                                                                                     
                                                                                                                                
REPRESENTATIVE  STORY noted  that this  legislation was  heard in                                                               
the  Thirty-First  Alaska State  Legislature,  and  while in  the                                                               
Senate Finance Committee, a few  changes had been made which have                                                               
been incorporated in HB 115.                                                                                                    
                                                                                                                                
1:10:15 PM                                                                                                                    
                                                                                                                                
GREG  SMITH,  Staff,  Representative  Andi  Story,  Alaska  State                                                               
Legislature,  on behalf  of  Representative  Story, detailed  the                                                               
Sectional Analysis  on HB  115, which  read as  follows [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     Section  1:  Amends  AS  38.05.035(a)  to  require  the                                                                    
     Director of the Division of  Mining, Land, and Water to                                                                    
     submit an  annual report to the  legislature, primarily                                                                    
     detailing  aquatic   farm  and  hatchery   site  leases                                                                    
     pending with the department.                                                                                               
                                                                                                                                
     Section  2:   Amends  AS  38.05.070(e)  by   adding  AS                                                                    
     38.05.083  (aquatic   farm  leasing  statute)   to  the                                                                    
     general  leasing renewal  section of  law. This  change                                                                    
     allows  the director  to renew  an  aquatic farm  lease                                                                    
     under general lease renewal procedure.                                                                                     
          ? A  technical amendment on lines  20-21 specifies                                                                    
     which  types  of  leases  may  be  renewed  under  this                                                                    
     procedure.                                                                                                                 
                                                                                                                                
     Section  3: Amends  AS  38.050.083(a)  by deleting  the                                                                    
     term  "or renew"  from this  section  of statute.  This                                                                    
     removes the requirement that  the renewal procedure for                                                                    
     an aquatic  farm or hatchery undergo  the more detailed                                                                    
     AS 38.05.945 adjudication process.                                                                                         
                                                                                                                                
     Section  4: Amends  AS  38.050.083(b)  by deleting  the                                                                    
     term "or  renewal" from this  section of  statute. This                                                                    
     removes  the renewal  procedure from  the aquatic  farm                                                                    
     leasing statute.                                                                                                           
                                                                                                                                
     Section  5:  Adds  new subsections  to  AS  38.050.083,                                                                    
     including:                                                                                                                 
          ? (g): stating the  Commissioner of the Department                                                                    
     of Natural  Resources may renew  an aquatic  farm lease                                                                    
     under the general leasing renewal procedure;                                                                               
          ?   (h):   explicitly    states   ecotourism   and                                                                    
     educational  purposes are  allowable  uses for  aquatic                                                                    
     farming and hatchery sites; and                                                                                            
          ?  (i): explicitly  prohibits the  charging of  an                                                                    
     additional fee  to aquatic  farming and  hatchery sites                                                                    
     for the use of, or passage, across these sites.                                                                            
                                                                                                                                
     Section  6: Adds  a new  section to  uncodified law  to                                                                    
     require Director  of the Division of  Mining, Land, and                                                                    
     Water to  submit an initial  report to  the legislature                                                                    
     detailing  aquatic   farm  and  hatchery   site  leases                                                                    
     pending  with  the  department, estimates  of  economic                                                                    
     impact   if   all   the  leases   were   granted,   and                                                                    
     recommendations  by DNR  and  other  state agencies  to                                                                    
     streamline the lease approval process.                                                                                     
                                                                                                                                
1:13:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   FIELDS   thanked    Representative   Story   for                                                               
introducing  the   bill  and  noted   that  he  has   heard  from                                                               
acquaintances regarding problems with  the 10-year lease renewal.                                                               
He asked why  the bill is written to  implement expedited renewal                                                               
processes instead of changing to 25-year leases.                                                                                
                                                                                                                                
REPRESENTATIVE STORY  answered that it  would be helpful  to hear                                                               
from the department staff who would be testifying.                                                                              
                                                                                                                                
REPRESENTATIVE FIELDS responded that he  would also like to learn                                                               
about  what happens  in the  case of  something going  wrong mid-                                                               
lease.                                                                                                                          
                                                                                                                                
1:14:46 PM                                                                                                                    
                                                                                                                                
CHRISTY COLLES,  Division Operations Manager, Division  of Mining                                                               
Land and  Water, Department of Natural  Resources, explained that                                                               
currently the regulation is for  a 10-year authorization, and any                                                               
term longer than  10 years requires a survey for  leases, and, in                                                               
many  cases, the  lessees don't  want to  spend the  money for  a                                                               
survey and appraisal.   She said it would be  possible to move to                                                               
a  longer  authorization, but  the  statute  affects all  of  the                                                               
leases.                                                                                                                         
                                                                                                                                
REPRESENTATIVE FIELDS  followed up  to ask whether  it's feasible                                                               
to  extend  the term  of  only  the  leases in  question  without                                                               
harming the other 10-year leases, and  to require the survey at a                                                               
later date instead of at the  beginning of the lease, so that the                                                               
lessee can  spread out the  costs and make more  money throughout                                                               
the lease term.                                                                                                                 
                                                                                                                                
MS.  COLLES  responded that  she  thinks  it  is possible.    She                                                               
explained  that  the  benefit of  this  proposed  legislation  is                                                               
allowing  the farmers  to have  the certainty  of a  longer lease                                                               
without having to  go through the full  process of preliminaries,                                                               
public notice,  and final  notice.  She  noted that  lessees have                                                               
expressed that  they would like  the option  of having a  term of                                                               
longer than 10 years.                                                                                                           
                                                                                                                                
REPRESENTATIVE  FIELDS  said  that  he  would  be  interested  in                                                               
introducing an  amendment to lengthen  the initial lease  term to                                                               
15 or 20 years, perhaps requiring a  survey at year 10.  He noted                                                               
that these  facilities are very  capital-intensive and  that it's                                                               
reasonable to have a longer period to recoup the investment.                                                                    
                                                                                                                                
1:17:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HANNAN  said that Alaska has  had many mariculture                                                               
leases, largely for shellfish, and  the further north the area is                                                               
the slower the  shellfish grow, so it may be  years before a farm                                                               
has a commercially viable crop.   She said that the new growth in                                                               
the  mariculture  industry  involves  faster-growing  crops  like                                                               
kelp, and that the department  found that it couldn't process the                                                               
new leases  into commercial operation because  it felt obligation                                                               
to  renew the  leases of  the existing  operators; new  operators                                                               
couldn't enter  the segment that's  flourishing in  the industry.                                                               
She  said  that new  operators  could  potentially conflict  with                                                               
other  leases, in  that allowing  lease renewals  is much  easier                                                               
than processing new leases.                                                                                                     
                                                                                                                                
REPRESENTATIVE  STORY  noted  that  when  an  operator  is  going                                                               
through a lease renewal their  application is queued with all the                                                               
others, lengthening the process.                                                                                                
                                                                                                                                
1:20:21 PM                                                                                                                    
                                                                                                                                
CHAIR PATKOTAK observed  that HB 115 would  bring the mariculture                                                               
industry to  the same level  playing field  with the rest  of the                                                               
agricultural industry in Alaska.                                                                                                
                                                                                                                                
1:21:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HOPKINS said  that  even in  Fairbanks there  are                                                               
many Alaska-grown  mariculture products  and that  he appreciates                                                               
the proposed bill.                                                                                                              
                                                                                                                                
1:21:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  FIELDS  asked  whether   10  years  is  the  best                                                               
timeframe  or  if  extending  the  lease  term  would  have  more                                                               
benefits.                                                                                                                       
                                                                                                                                
MS.  COLLES replied  that agricultural  leases  can go  up to  55                                                               
years, but aquatic farms are at  10 years based on regulations in                                                               
place.   She said  that regulations  can be  changed, and  if the                                                               
department  could  find  a  statutory  change  that  would  allow                                                               
consideration of  a longer-term lease,  they might allow  a lease                                                               
term beyond 10 years.                                                                                                           
                                                                                                                                
1:23:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GILLHAM  followed  up on  Representative  Fields'                                                               
question and  said that by the  time an oyster crop  is grown and                                                               
ready for market it could be 8  to 10 years, then they would need                                                               
to start all over.   He said that for seaweed  a 10-year lease is                                                               
appropriate, but for shellfish, it's too short.                                                                                 
                                                                                                                                
1:24:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FIELDS  said that he had  heard, anecdotally, that                                                               
growing seaweed and oysters  side-by-side benefits water quality,                                                               
and asked why that wouldn't be wanted.                                                                                          
                                                                                                                                
REPRESENTATIVE STORY said that she  would defer to the department                                                               
for that question.                                                                                                              
                                                                                                                                
MS.  COLLES responded  that the  question would  be appropriately                                                               
directed to the  Department of Fish and Game, but  that she is of                                                               
the same understanding as Representative Fields.                                                                                
                                                                                                                                
1:25:57 PM                                                                                                                    
                                                                                                                                
HEATHER  MCCARTY, Chair,  Mariculture  Task  Force, testified  in                                                               
support of HB 115.   She gave a brief overview  of the purpose of                                                               
the Mariculture  Task Force, noting  that it was created  in 2016                                                               
to  represent  several  entities  with  interest  in  mariculture                                                               
development; one of the task  force's first tasks was to identify                                                               
priorities  which  would  move mariculture  development  forward.                                                               
She said  that the task  force focused on  identifying regulatory                                                               
areas which  needed to  be addressed;  the Department  of Natural                                                               
Resources'  (DNR's)  lease  process  is  one  area  which  needed                                                               
improvement.   She said  that she believes  there was  a two-year                                                               
backlog  of   requests,  which  has  gotten   better;  the  issue                                                               
addressed in  this bill  was also identified  by the  task force.                                                               
She said  that the renewal process  doesn't need to take  as long                                                               
as the  initial lease.   She then said, regarding  the ecotourism                                                               
sites, that  allowing that  activity would  significantly benefit                                                               
those operators.                                                                                                                
                                                                                                                                
1:29:36 PM                                                                                                                    
                                                                                                                                
ERIC  WYATT,  President,  Alaska Shellfish  Growers  Association,                                                               
testified in  support of  HB 115.   He  identified himself  as an                                                               
active  farmer of  more than  10 years  and said  that it's  very                                                               
encouraging  to   hear  the  comments  that   are  supportive  of                                                               
mariculture.  He said that he  likes simple solutions to move the                                                               
industry  forward,   and  that   the  Alaska   Shellfish  Growers                                                               
Association  approves of  this proposed  bill, and  he personally                                                               
approves  of it  as  well.   He emphasized  his  approval of  the                                                               
ecotourism portion of HB 115.                                                                                                   
                                                                                                                                
1:31:34 PM                                                                                                                    
                                                                                                                                
CHAIR  PATKOTAK  opened  public  testimony  on  HB  115.    After                                                               
ascertaining  that no  one wished  to testify,  he closed  public                                                               
testimony.                                                                                                                      
                                                                                                                                
1:32:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  STORY remarked  that  she believes  HB 115  would                                                               
have  great  potential  for  helping   businesses  and  that  she                                                               
appreciates the support of the testifiers.                                                                                      
                                                                                                                                
REPRESENTATIVE GILLHAM  asked for a definition  of maritourism or                                                               
aquatourism.                                                                                                                    
                                                                                                                                
MR. SMITH answered  that maritourism is commonly  the practice of                                                               
people visiting the  shellfish farm, seeing the  floats or docks,                                                               
tasting the products, and learning about the process.                                                                           
                                                                                                                                
REPRESENTATIVE  GILLHAM  described  his  experience  visiting  an                                                               
oyster  farm  in  Prince  William Sound,  and  he  expressed  his                                                               
appreciation of HB 115.                                                                                                         
                                                                                                                                
REPRESENTATIVE    HANNAN   described    her   appreciation    for                                                               
mariculture, and  she noted  that there is  a growing  segment of                                                               
travelers that  want to  be educated  instead of  just purchasing                                                               
the product.                                                                                                                    
                                                                                                                                
1:36:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   HOPKINS  related   a   personal  experience   of                                                               
ecotourism.                                                                                                                     
                                                                                                                                
REPRESENTATIVE  CRONK noted  that he  supports the  proposed bill                                                               
and stated his support for helping private businesses.                                                                          
                                                                                                                                
REPRESENTATIVE  STORY agreed  that  supporting  this industry  is                                                               
important and thanked committee members for their comments.                                                                     
                                                                                                                                
1:38:09 PM                                                                                                                    
                                                                                                                                
CHAIR PATKOTAK announced that HB 115 was held over.                                                                             
                                                                                                                                
        HB 81-OIL/GAS LEASE: DNR MODIFY NET PROFIT SHARE                                                                    
                                                                                                                                
1:38:50 PM                                                                                                                    
                                                                                                                                
CHAIR PATKOTAK announced  that the final order  of business would                                                               
be  HOUSE BILL  NO. 81  "An Act  authorizing the  commissioner of                                                               
natural resources to modify a net profit share lease."                                                                          
                                                                                                                                
[Before the committee was the  proposed committee substitute (CS)                                                               
for HB  81, Version 32-GH1706\B, Nauman,  3/16/21, ("Version B"),                                                               
adopted  as  a  working  document   during  the  House  Resources                                                               
Standing Committee  meeting on 3/17/21,  with Amendment  1 tabled                                                               
and Amendment 2 left pending with an objection.]                                                                                
                                                                                                                                
CHAIR  PATKOTAK   briefly  addressed  the  amendments   that  the                                                               
Department  of  Natural Resources  (DNR)  worked  on and  invited                                                               
Representative Hannan to speak about her amendment.                                                                             
                                                                                                                                
1:39:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HANNAN  described  Amendment  2,  which  read  as                                                               
follows:                                                                                                                        
                                                                                                                                
     Page 2, line 18, following "feasible;":                                                                                
          Insert "a royalty modification may not be made                                                                    
     under this subparagraph;"                                                                                              
                                                                                                                                
     Page 2, line 30:                                                                                                           
          Delete "or (1)(D)"                                                                                                
                                                                                                                                
     Page 4, line 5:                                                                                                            
          Delete "or net profit share"                                                                                      
          Following "(1)(A)":                                                                                                   
        Insert "of this subsection or a net profit share                                                                    
     reduction under (1)(A)"                                                                                                
                                                                                                                                
REPRESENTATIVE  HANNAN  reviewed  that   Amendment  2  was  about                                                               
encouraging production  and said that  she believes it  should be                                                               
limited  to  affecting only  the  26  net profit  sharing  leases                                                               
(NPSLs) instead  of opening  it to the  thousands of  leases that                                                               
have  royalties, because  every  lease has  a royalty  component.                                                               
She  said that  the  committee has  learned  that operators  with                                                               
royalty-only leases have other ways  of renegotiating the royalty                                                               
amount, but  this bill was  designed to get  non-productive NPSLs                                                               
into production.   She said that the NPSLs could  use the various                                                               
avenues available in existing  statute to evaluate renegotiation.                                                               
She also noted  that legislative oversight is  required to change                                                               
a lease agreement,  and the Legislative Finance  Division is most                                                               
likely  not  prepared  to  provide  oversight  for  thousands  of                                                               
royalty leases; however, oversight of  26 NPSLs is possible.  She                                                               
ended  by summarizing  that she  supports changes  that encourage                                                               
NPSLs into production, but doesn't  want to create a broad change                                                               
that would allow  thousands of royalty lease  renegotiations in a                                                               
given timeframe.                                                                                                                
                                                                                                                                
1:42:10 PM                                                                                                                    
                                                                                                                                
CHAIR   PATKOTAK  invited   Ryan  Fitzpatrick   to  clarify   any                                                               
actionable changes that would be made by the Amendment 2.                                                                       
                                                                                                                                
1:42:38 PM                                                                                                                    
                                                                                                                                
RYAN  FITZPATRICK,  Commercial  Analyst,  Department  of  Natural                                                               
Resources, referred to the document  "Changes in CS HB 81 Version                                                               
I" [Version  I was not  moved for adoption until  3/22/21], which                                                               
read as follows [original punctuation provided]:                                                                                
                                                                                                                                
     Page 2 Lines 16  19                                                                                                        
          -  Clarifies language  in  subsection D  regarding                                                                    
     circumstances in which  capital expenditures are needed                                                                    
     to extend the  economic life of an oil or  gas field or                                                                    
     pool                                                                                                                       
       - Specifies that subsection D only applies to net                                                                        
     profit share lease modifications                                                                                           
                                                                                                                                
MR.  FITZPATRICK explained  that Amendment  2 would  restrict the                                                               
scenario to  the 26 NPSLs  and modify  only the net  profit share                                                               
component  of   the  26  leases,  not   necessarily  the  royalty                                                               
component.  He  said that he believes that,  from the perspective                                                               
of  DNR, the  issue  with  modifying only  the  net profit  share                                                               
component  is that  it sufficiently  incentivizes  the lessee  to                                                               
make  the  capital  expenditures   necessary  to  get  the  lease                                                               
productive again.   He  said that  if it  was possible  to modify                                                               
royalty in  addition to  net profit  share, then  the leaseholder                                                               
might be sufficiently incentivized  to make capital expenditures,                                                               
thereby extending the life of the field or pool.                                                                                
                                                                                                                                
1:45:21 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HOPKINS  stated  that  he  supports  Amendment  2                                                               
because of  the title of the  bill, which specifies "to  modify a                                                             
net profit  share lease."   He noted that the  presentations have                                                             
involved  the  26 NPSLs,  but  they've  had no  presentations  or                                                               
opportunities to  learn about  the royalty-only  leases.   If the                                                               
committee  wants   to  address  royalty  modifications   for  the                                                               
previously  described  "scenario D,"  he  said,  there should  be                                                               
another bill  up for discussion.   He opined that Amendment  2 is                                                               
"absolutely  critical"  to  limit  the bill  to  the  information                                                               
already received, the title, and the intent of the bill.                                                                        
                                                                                                                                
1:47:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  FIELDS  stated  that  he supports  HB  81  as  it                                                               
pertains to  the NPSLs  but not  with impacts  on royalties.   He                                                               
said  that  he  supports  Amendment  2  and  cannot  support  the                                                               
underlying bill  without it  or his  "subsequent amendment  to an                                                               
amendment  to   make  sure   we  are   appropriately  encouraging                                                               
production  and capital  investment."    He noted  Representative                                                               
Hopkins'  comments   regarding  the   text  of  the   bill  being                                                               
consistent with the title.                                                                                                      
                                                                                                                                
1:48:24 PM                                                                                                                    
                                                                                                                                
CHAIR PATKOTAK  invited Mr.  Fitzpatrick or  Mr. Meza  to provide                                                               
any further comments before the committee votes.                                                                                
                                                                                                                                
MR.  FITZPATRICK said  that  making  a change  in  policy is  the                                                               
prerogative of the legislature, and  noted that in the PowerPoint                                                               
presentation  (given  by  Mr. Meza  during  the  House  Resources                                                               
Standing Committee meeting on March  5, 2021, and included in the                                                               
committee packet), slides 21 and  23 were intended to convey that                                                               
the newly proposed "scenario D" under  HB 81 was to apply to both                                                               
royalty modification and NPSL modification situations.                                                                          
                                                                                                                                
1:49:46 PM                                                                                                                    
                                                                                                                                
CHAIR  PATKOTAK  asked  for clarification  on  Amendment  2  with                                                               
reference to  the PowerPoint  presentation, titled  "HB 81  - DNR                                                               
MODIFYING NET PROFIT SHARES ON OIL  & GAS LEASES," and whether it                                                               
would limit the authority of  the DNR commissioner as outlined in                                                               
item 1A  on slide 21  of the PowerPoint presentation,  which read                                                               
as follows [original punctuation provided]:                                                                                     
                                                                                                                                
     1. Expand the royalty modification process to include                                                                      
     NPSLs:                                                                                                                     
          A.  Commissioner  would   have  the  authority  to                                                                    
     modify net  profit share  rates in  the same  manner as                                                                    
     royalty rates under AS 38.05.180(j).                                                                                       
               ?  Objective is  to  encourage production  of                                                                    
     otherwise stranded resources.                                                                                              
                                                                                                                                
MR. FITZPATRICK answered  that he believes Amendment  2 would not                                                               
impact  that  provision,  but  it  would  impact  other  proposed                                                               
changes,  as shown  in  item 2A  on slide  21  of the  PowerPoint                                                               
presentation,  which   read  as  follows   [original  punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     2. Other changes:                                                                                                          
          A. Creates  an additional qualifying  scenario for                                                                    
     modification of either royalty or NPSLs                                                                                    
               ?  For  producing  pools,  where  incremental                                                                    
     production  requires incremental  capital expenditures,                                                                    
     which,  in  the  absence   of  modification,  would  be                                                                    
     uneconomic.                                                                                                                
                                                                                                                                
MR.  FITZPATRICK explained  that the  intent of  DNR was  for the                                                               
modification allowance to apply to both royalty and NPSLs.                                                                      
                                                                                                                                
1:51:46 PM                                                                                                                    
                                                                                                                                
CHAIR  PATKOTAK noted  that Representative  Rauscher had  brought                                                               
forth the  original objection  to Amendment  2 [on  3/17/21], for                                                               
discussion  purposes, but  that Representative  Rauscher's office                                                               
approved of  lifting his objection  in his absence.   There being                                                               
no further objection, Amendment 2 was adopted.                                                                                  
                                                                                                                                
1:52:23 PM                                                                                                                    
                                                                                                                                
CHAIR  PATKOTAK referred  to  the  amendment from  Representative                                                               
Fields, and he and Representative  Fields briefly discussed which                                                               
amendments are about to be put forth.                                                                                           
                                                                                                                                
1:53:12 PM                                                                                                                    
                                                                                                                                
The committee took a brief at-ease.                                                                                             
                                                                                                                                
1:53:25 PM                                                                                                                    
                                                                                                                                
CHAIR PATKOTAK  reminded committee  members that on  3/17/21, the                                                               
committee had tabled Amendment 1.   He announced that Amendment 1                                                               
was before the committee.  Amendment 1 read as follows:                                                                         
                                                                                                                                
     Page 2, lines 17 - 18:                                                                                                     
          Delete "for which additional capital expenditures                                                                 
     would make future production no longer"                                                                                
          Insert "from which, without additional capital                                                                    
     expenditures, future production would no longer be"                                                                    
                                                                                                                                
1:53:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FIELDS moved to adopt Amendment 1 to Amendment 1,                                                                
labeled 32-GH1706\B.3, Nauman, 3/18/21, which read as follows:                                                                  
                                                                                                                                
     Page 2, lines 17 - 18:                                                                                                     
          Delete "for which additional capital expenditures                                                                 
     would make future production no longer"                                                                                
          Insert "from which, without additional capital                                                                    
     expenditures, future production would no longer be"                                                                    
                                                                                                                                
     Page 3, following line 9:                                                                                                  
          Insert a new paragraph to read:                                                                                       
               "(6)  may not grant a royalty or net profit                                                                  
     share modification for a field or pool under (1)(D) of                                                                 
     this subsection unless                                                                                                 
               (A)  the modification requires the lessee or                                                                 
     lessees to make the capital expenditures necessary for                                                                 
     production to be economically feasible; and                                                                            
               (B)  the commissioner determines that the                                                                    
     capital expenditures made under (A) of this paragraph                                                                  
      are sufficient to maximize production from the field                                                                  
     or pool;"                                                                                                              
                                                                                                                                
     Page 3, line 10:                                                                                                           
          Delete "(6)"                                                                                                      
          Insert "(7)"                                                                                                      
                                                                                                                                
     Page 3, line 16:                                                                                                           
          Delete "(7)"                                                                                                      
          Insert "(8)"                                                                                                      
                                                                                                                                
     Page 4, line 3:                                                                                                            
          Delete "(8)"                                                                                                      
          Insert "(9)"                                                                                                      
                                                                                                                                
     Page 4, line 28:                                                                                                           
          Delete "(9)"                                                                                                      
          Insert "(10)"                                                                                                     
                                                                                                                                
     Page 5, line 2:                                                                                                            
          Delete "(10)"                                                                                                     
          Insert "(11)"                                                                                                     
                                                                                                                                
     Page 5, line 4:                                                                                                            
          Delete "(9)"                                                                                                      
          Insert "(10)"                                                                                                     
                                                                                                                                
     Page 5, line 9:                                                                                                            
          Delete "(11)"                                                                                                     
          Insert "(12)"                                                                                                     
                                                                                                                                
     Page 5, line 16:                                                                                                           
          Delete "(12)"                                                                                                     
          Insert "(13)"                                                                                                     
                                                                                                                                
     Page 5, line 17:                                                                                                           
          Delete "(9)"                                                                                                      
          Insert "(10)"                                                                                                     
                                                                                                                                
     Page 5, line 29:                                                                                                           
          Delete "(9)"                                                                                                      
          Insert "(10)"                                                                                                     
                                                                                                                                
     Page 5, line 31:                                                                                                           
          Delete "(13)"                                                                                                     
          Insert "(14)"                                                                                                     
                                                                                                                                
1:53:56 PM                                                                                                                    
                                                                                                                                
CHAIR PATKOTAK objected for discussion purposes.                                                                                
                                                                                                                                
1:54:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  FIELDS   thanked  the  collaborators   for  their                                                               
assistance and described Amendment 1  to Amendment 1, which would                                                               
ensure  maximum  production  from  the fields  by  ensuring  that                                                               
capital investments are made to  prolong the lives of the fields.                                                               
He  said that  if  either capital  investment  or modified  lease                                                               
terms  could extend  the  life  of the  field,  then the  capital                                                               
investment should  happen either before, or  in conjunction with,                                                               
modified lease terms,  so that modified terms don't  occur at the                                                               
expense of capital investment.                                                                                                  
                                                                                                                                
1:54:56 PM                                                                                                                    
                                                                                                                                
MR. FITZPATRICK explained that this  amendment would specify that                                                               
if capital expenditures  are necessary to extend the  life of the                                                               
field  or pool  and reduced  lease terms  are also  allowed, then                                                               
there  would be  a condition  on  the modification  of the  lease                                                               
terms so that  the capital expenditures must be made  or else the                                                               
modification would  be rescinded.   He described a  specific case                                                               
in  which  capital  expenditures  were not  made,  therefore  the                                                               
royalty modification  lapsed, and  he indicated that  he believes                                                               
DNR would support this amendment.                                                                                               
                                                                                                                                
1:57:40 PM                                                                                                                    
                                                                                                                                
CHAIR PATKOTAK  removed his  objection.   There being  no further                                                               
objection,  Amendment 1  to Amendment  1  was adopted.   He  then                                                               
spoke to  Amendment 1, as  amended, and  addressed Representative                                                               
Hopkins' earlier objection to Amendment 1.                                                                                      
                                                                                                                                
1:58:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HOPKINS withdrew  his objection  to Amendment  1,                                                               
[as amended]. There  being no further objection,  Amendment 1, as                                                               
amended, was adopted.                                                                                                           
                                                                                                                                
1:58:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HOPKINS  indicated his  thanks to DNR  for helping                                                               
bring  this proposed  legislation forward  and expressed  that he                                                               
still has  some concerns about the  bill, but that he  would like                                                               
it to  continue going  forward in  order to  maximize production.                                                               
He said that he wants to  ensure that HB 81, as amended, wouldn't                                                               
"make profitable  production more  profitable," but  rather would                                                               
bring   fields  that   wouldn't  otherwise   be  developed   into                                                               
production.                                                                                                                     
                                                                                                                                
[HB 81 was held over.]                                                                                                          
                                                                                                                                
2:02:51 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 2:03 p.m.                                                                 

Document Name Date/Time Subjects
HB 115 Letter of Support JEDC 3.17.2021.pdf HRES 3/19/2021 1:00:00 PM
HB 115
HB 115 ver W Sectional Analysis 02.24.21.pdf HFSH 3/9/2021 11:00:00 AM
HRES 3/19/2021 1:00:00 PM
HB 115
HB 115 Seagrove letter of support 03.02.21.pdf HFSH 3/4/2021 11:00:00 AM
HFSH 3/9/2021 11:00:00 AM
HRES 3/19/2021 1:00:00 PM
HB 115
HB 115 MTF Letter of Support 03.01.21.pdf HFSH 3/4/2021 11:00:00 AM
HFSH 3/9/2021 11:00:00 AM
HRES 3/19/2021 1:00:00 PM
HB 115
HB 115 Marble Seafoods Hump Island letter of support 03.02.21.pdf HFSH 3/4/2021 11:00:00 AM
HFSH 3/9/2021 11:00:00 AM
HRES 3/19/2021 1:00:00 PM
HB 115
HB 115 Global Seas letter of support 03.02.21.pdf HFSH 3/4/2021 11:00:00 AM
HFSH 3/9/2021 11:00:00 AM
HRES 3/19/2021 1:00:00 PM
HB 115
HB 115 AFDF Letter of Support 03.01.21.pdf HFSH 3/4/2021 11:00:00 AM
HFSH 3/9/2021 11:00:00 AM
HRES 3/19/2021 1:00:00 PM
HB 115
HB 115 Southeast Conference Letter of Support 3.3.21.pdf HFSH 3/4/2021 11:00:00 AM
HFSH 3/9/2021 11:00:00 AM
HRES 3/19/2021 1:00:00 PM
HB 115
HB 115 Sponsor Statement 02.24.21.pdf HFSH 3/4/2021 11:00:00 AM
HFSH 3/9/2021 11:00:00 AM
HRES 3/19/2021 1:00:00 PM
HB 115
HB 115 Letter of Support - Simpson Bay Oyster Company 3.3.21.pdf HFSH 3/9/2021 11:00:00 AM
HRES 3/19/2021 1:00:00 PM
HB 115
HB 81 Amendment Technical 3.17.2021.pdf HRES 3/17/2021 1:00:00 PM
HRES 3/19/2021 1:00:00 PM
HB 81
HB 81 Amendment Hannan 3.17.2021.pdf HRES 3/17/2021 1:00:00 PM
HRES 3/19/2021 1:00:00 PM
HB 81
HB 81 Proposed HRES CS 32-GH1706 Version B 3.17.2021.pdf HRES 3/17/2021 1:00:00 PM
HRES 3/19/2021 1:00:00 PM
HB 81
HB 81 Support DNR NPSL One Pager 3.5.2021.pdf HRES 3/5/2021 1:00:00 PM
HRES 3/10/2021 1:00:00 PM
HRES 3/17/2021 1:00:00 PM
HRES 3/19/2021 1:00:00 PM
HB 81
HB 81 Sponsor Statement 1.28.21.pdf HRES 3/5/2021 1:00:00 PM
HRES 3/10/2021 1:00:00 PM
HRES 3/17/2021 1:00:00 PM
HRES 3/19/2021 1:00:00 PM
HB 81
HB 81 Sectional Analysis Version A 2.23.2021.pdf HRES 3/5/2021 1:00:00 PM
HRES 3/10/2021 1:00:00 PM
HRES 3/17/2021 1:00:00 PM
HRES 3/19/2021 1:00:00 PM
HB 81
HB 81 Presentation to HRES 3.5.2021.pdf HRES 3/5/2021 1:00:00 PM
HRES 3/10/2021 1:00:00 PM
HRES 3/19/2021 1:00:00 PM
HB 81
HB 81 Letter of Support Alaska Oil and Gas Association 3.9.2021.pdf HRES 3/10/2021 1:00:00 PM
HRES 3/17/2021 1:00:00 PM
HRES 3/19/2021 1:00:00 PM
HB 81
HB 81 Amendment 1 to Amendment 1 Fields 3.19.2021.pdf HRES 3/19/2021 1:00:00 PM
HB 81
HB 115 Letter of Support Salt Lady Seafood 3.19.2021.pdf HRES 3/19/2021 1:00:00 PM
HB 115