Legislature(1995 - 1996)
03/27/1995 08:17 AM House RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE RESOURCES STANDING COMMITTEE
March 27, 1995
8:17 a.m.
MEMBERS PRESENT
Representative Joe Green, Co-Chairman
Representative Bill Williams, Co-Chairman
Representative Scott Ogan, Vice Chairman
Representative Alan Austerman
Representative Ramona Barnes
Representative Pete Kott
MEMBERS ABSENT
Representative John Davies
Representative Eileen MacLean
Representative Irene Nicholia
COMMITTEE CALENDAR
HB 207: "An Act relating to adjustments to royalty reserved to
the state to encourage otherwise uneconomic production
of oil and gas; relating to the depositing of royalties
and royalty sale proceeds in the Alaska permanent fund;
and providing for an effective date."
HEARD AND HELD
WITNESS REGISTER
JOHN SHIVELY, Commissioner
Department of Natural Resources
400 Willoughby Ave.
Juneau, AK 99801
Phone: 465-2400
POSITION STATEMENT: Commented on two issues regarding HB 207
REPRESENTATIVE NORMAN ROKEBERG
Alaska State Legislature
Capitol Building, Room 110
Juneau, AK 99801
Phone: 465-4968
POSITION STATEMENT: Commented on HB 207
JERRY REINWAND, Representative
Fina Oil & Chemical
2 Marine Way, No. 219
Juneau, AK 99801
Phone: 586-8966
POSITION STATEMENT: Commented on HB 207
TOM WILLIAMS, Alaska Tax Counsel
British Petroleum Exploration
P.O. Box 196612
Anchorage, AK 99515
Phone: 564-5955
POSITION STATEMENT: Supported HB 207 with changes
RICHARD FINEBERG, Representative
Research Associates
P.O. Box 416
Ester, AK 99725
Phone: 479-7778
POSITION STATEMENT: Opposed HB 207
KEVIN TABLER, Land Manager
UNOCAL Corporation
P.O. Box 196247
Anchorage, AK 99516
Phone: 263-7600
POSITION STATEMENT: Supported HB 207 with changes
KEN BOYD, Acting Director
Division of Oil and Gas
Department of Natural Resources
3601 C Street, Ste. 1380
Anchorage, AK 99503
Phone: 762-2547
POSITION STATEMENT: Answered a question regarding the fiscal
note on HB 207
PREVIOUS ACTION
BILL: HB 207
SHORT TITLE: ADJUSTMENTS TO OIL AND GAS ROYALTIES
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
JRN-DATE JRN-PG ACTION
02/27/95 501 (H) READ THE FIRST TIME - REFERRAL(S)
02/27/95 501 (H) OIL & GAS, RESOURCES, FINANCE
02/27/95 501 (H) FISCAL NOTE (DNR)
02/27/95 501 (H) 2 ZERO FISCAL NOTES (DNR, REV)
02/27/95 501 (H) GOVERNOR'S TRANSMITTAL LETTER
03/08/95 665 (H) CORRECTED FISCAL NOTE (DNR)
03/09/95 (H) O&G AT 12:00 PM CAPITOL 17
03/09/95 (H) MINUTE(O&G)
03/14/95 (H) O&G AT 10:00 AM CAPITOL 124
03/14/95 (H) MINUTE(O&G)
03/15/95 (H) O&G AT 05:00 PM BELTZ ROOM 211
03/15/95 (H) MINUTE(O&G)
03/16/95 (H) O&G AT 10:00 AM CAPITOL 124
03/16/95 (H) MINUTE(O&G)
03/17/95 (H) O&G AT 05:00 PM CAPITOL 124
03/17/95 (H) MINUTE(O&G)
03/20/95 (H) O&G AT 05:00 PM CAPITOL 106
03/21/95 (H) O&G AT 10:00 AM CAPITOL 124
03/22/95 848 (H) O&G RPT CS(O&G) NT 4DP 1NR 2AM
03/22/95 849 (H) DP: OGAN, BRICE, ROKEBERG, B.DAVIS
03/22/95 849 (H) NR: G.DAVIS
03/22/95 849 (H) AM: WILLIAMS, FINKELSTEIN
03/22/95 849 (H) 0&G LETTER OF INTENT
03/22/95 849 (H) INDETERMINATE FISCAL NOTE (REV)
03/22/95 850 (H) FISCAL NOTE (DNR) 3/8/95
03/22/95 850 (H) ZERO FISCAL NOTE (REV) 2/27/95
03/22/95 (H) RES AT 08:00 AM CAPITOL 124
03/22/95 (H) MINUTE(RES)
03/22/95 (H) O&G AT 05:00 PM
03/23/95 (H) O&G AT 10:00 AM CAPITOL 124
03/24/95 (H) RES AT 08:00 AM CAPITOL 124
03/24/95 (H) MINUTE(RES)
03/27/95 (H) RES AT 08:00 AM CAPITOL 124
ACTION NARRATIVE
TAPE 95-41, SIDE A
Number 000
The House Resources Committee was called to order by Co-Chairman
Green at 8:17 a.m. Members present at the call to order were
Representatives Green and Ogan. Members absent were
Representatives Williams, Austerman, Barnes, Davies, Kott, MacLean,
and Nicholia.
CO-CHAIRMAN JOE GREEN announced testimony would continue on the
work draft of HB 207, version K, which was introduced to the
committee on Friday.
HRES - 03/27/95
HB 207 - ADJUSTMENTS TO OIL AND GAS ROYALTIES
JOHN SHIVELY, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES (DNR),
testified via teleconference and stated there are a few technical
issues he and Mr. Boyd have discussed with Co-Chairman Green's
staff which will hopefully be worked out. He said there are two
major points he would like to make. First, the Administration
objects to taking all royalties down to zero. The Administration
did agree with the Oil and Gas Committee (OGC) to keep the
permanent fund whole and thought there would be a minimum royalty
of 25 percent of the existing royalties for all 3 situations. He
noted the Administration does not feel it is good public policy to
have a zero royalty.
MR. SHIVELY said the second issue is the oversight, which is a very
complicated system. He does understand why people want oversight
over the commissioner. The problem involves how to provide
oversight in a meaningful way. He said it really depends on what
the legislature wants in terms of oversight. If the legislature
wants oversight of the economic decision, there is no one in
government who has the capacity to do that. He noted that in the
legislation there is a request for industry to pay for such an
economic analysis, if needed, because although the department has
the skills, it does not always have the capacity.
MR. SHIVELY stated in terms of oversight by the Alaska Oil and Gas
Conservation Commission (AOGCC), their testimony has indicated they
also would need an economist to make such authority. He noted the
alternative is to look at the economics of the situation by looking
at the process--whether or not the commissioner found there was a
delineated field or pool, whether or not the commissioner made a
reasonable attempt to look at the economics, and whether or not the
commissioner found that such a reduction in royalty was in the
state's best interest. He explained oversight has been done by
having the commissioner ask for the recommendation and then
allowing the commissioner to proceed with his or her decision. He
felt that works in terms of reducing the potential bureaucracy but
that would have to (indiscernible) to the process.
MR. SHIVELY told committee members the Administration prefers the
Alaska Royalty Oil and Gas Development Advisory Board (AROGDAB)
over the AOGCC, in terms of oversight, because the AOGCC has a
certain conflict of interest due to their role, which is to
maximize oil development. He felt the AOGCC would have a tendency
to run the royalty down even further than the commissioner would
because they want to maximize the amount of oil coming out of a
field.
(Representative WILLIAMS joined the committee.)
CO-CHAIRMAN GREEN said the two points Mr. Shively brought up were
two of five brought up at Friday's hearing. He stated
unfortunately the rewrite of the rewrite is not completed. He
explained rather than look at either the AROGDAB, the AOGCC, or the
Attorney General, the rewrite will provide that the commissioner
make a determination, give public notice, and within 30 days of
that public notice, the commissioner will receive public written
comment, allowing the public to be the oversight rather than some
bureaucracy.
CO-CHAIRMAN GREEN noted with this suggested change, the fiscal note
would not be adversely impacted and this change would also remove
any aspersions which might be cast because of possible conflicts of
interest. He felt the public oversight is the best possible
situation. He mentioned the public oversight would be limited and
the oversight would occur after the commissioner has made a
preliminary determination.
MR. SHIVELY stated that concept would be very acceptable.
Number 180
CO-CHAIRMAN GREEN stated there has been a lot of discussion
regarding the zero royalty. Many felt that going to a zero royalty
might be a violation of the state Constitution. He said because of
that possibility, the rewrite provides that the reduction be in two
stages--the new, undeveloped delineated fields would not be reduced
more than 80 percent of otherwise and existing marginal fields
would not be reduced more than 90 percent of otherwise. He
explained the concept is that anything less than 100 percent in
either case could be viewed as giving away the state's resources.
On the other hand, the reduction is an incentive from the original
one-eighth to get someone else to come in with investment dollars
to develop the resource and the state then would receive, in
addition to a direct royalty, other benefits from the development
as well.
(Representative KOTT joined the committee.)
MR. SHIVELY stated although progress is being made, the
Administration's position remains that the royalty should only be
reduced up to 75 percent.
Number 221
CO-CHAIRMAN GREEN recalled Mr. Shively had brought up another issue
at Friday's hearing on HB 207 and that was the legislative intent
being too restrictive. He said in the rewrite, the legislative
intent reads, "In amending AS 38.05.180(j) in sec. 2 of this Act,
it is the intent of the legislature that the commissioner of
natural resources encourage reduction of royalty where appropriate,
to promote otherwise uneconomic production of oil and gas from
marginal fields and pools upon a finding that the royalty reduction
is in the best interests of the state." He felt that intent was
generic in that it addresses both those fields which have been in
production and are reaching their economic limit, and those that
were not developed because the economics were not good enough for
an investment.
MR. SHIVELY said the intent language sounds good. However, he felt
the word "encourage" should not be used. He felt "consider" might
be a better word. He stated the tone of the intent language is
better and increases the flexibility.
Number 257
CO-CHAIRMAN GREEN stated there were was also discussion at Friday's
hearing on HB 207 about subsection (1)(C) and (2) and the need for
a language change. He said in the work draft committee substitute
(CS), version K, on page 2, line 22, the word "commercial" preceded
the word "production." He explained because "commercial" is a
relative term, the word "commercial" will be eliminated in the
rewrite. He explained on line 13, page 2, of the work draft CS,
version K, the words "commercial quantities" was used. He felt to
eliminate people from having a difference of opinion regarding
those words, the rewrite will read, "oil and gas not previously
produced for sale". He noted the reason for the change is that
extended well tests might trigger this when that was not the intent
of the well test.
CO-CHAIRMAN GREEN said the information he gave to the writer of
regulations in regard to subsection (3), page 3, line 3-8, of the
work draft CS, version K, apparently led to the exclusive use of
the various terms listed, which was not the intent. He stated
there is a difference of opinion between him (Co-Chairman Green)
and the OGC on the use of the word "change." He explained the
rewrite says, "the commissioner shall include provisions in the
agreement to modify the state's royalty share based on relevant
economic factors including". He noted the writer has said when the
word "including" is used, it is redundant to say "but not limited
to" because that is automatically assumed. The commissioner then
has the right to look at any or all of the factors listed as well
as something else.
CO-CHAIRMAN GREEN said those are the intentions of change from CSHB
207 (O&G) and the work draft CS, version K. He explained no typed
versions are available. He asked Representative Rokeberg if he
would like to discuss his changes.
Number 350
REPRESENTATIVE NORMAN ROKEBERG stated that Mr. Boyd had recommended
some changes in the definitions of "other relevant factors." He
said in the work draft CS, version K, on page 3, line 10, the words
"proved reserves" would be deleted and changed to "the projected
ultimate recovery of oil and gas". He added that the words
"capital investment" on page 3, line 11, of the work draft CS,
version K, would be deleted and replaced with "development and/or
operating costs".
Number 414
JERRY REINWAND, REPRESENTATIVE, FINA OIL & CHEMICAL COMPANY, stated
the focus on the commissioner's discretion had been going in the
wrong direction but with the changes mentioned, the committee is
now headed in the right direction. He said the issue is not
discretion but rather oversight. He felt the legislature, by the
state Constitution, has been given the responsibility for
oversight. Clearly, the legislature can call in other people and
solicit their opinions but the oversight responsibility is the
legislature's. He noted the legislature has a lot of hooks in the
commissioner. The legislature has the power of confirmation and
every year the commissioner has to plead his or her budget before
the legislature.
MR. REINWAND said contracts are sometimes complex and difficult to
understand. He stated HB 207 is a very complex bill. He noted the
OGC, with people who are new to the legislative process, did an
excellent job with the bill. He pointed out in regard to oversight
of other kinds, he has seen legislators take their oversight
responsibility seriously and get extremely active. For example,
Representative Barnes managed to maintain oversight of the
Department of Corrections and did a very good job knowing what was
going on. He reiterated the issue is really oversight. He urged
the committee to make the process as simple as possible and hold
people accountable for their decisions.
Number 457
REPRESENTATIVE SCOTT OGAN stated the issue is allowing the public
process to be the oversight entity. He wondered if there is a
constitutional problem regarding public oversight, since the
legislature has authority over regulation of an administrative
action. He noted the public does not have any authority over the
commissioner. The public can tell the commissioner what they think
but the commissioner can do what he wants. The public can say
something is a bad policy but the commissioner is not obligated to
change something which might not be in the best interest of the
state.
(Representative BARNES joined the committee.)
MR. REINWAND said the concerns are legitimate. He noted he also
represents Tesoro and Tesoro has gone through a two-year process
trying to negotiate a contract. He stated the department and other
agencies which have been involved have not given away the farm. In
fact, it has been a very tough process. He pointed out there seems
to be a presumption that the commissioner or other members of the
Executive Branch are prone to give away the state's resources. He
stressed that is not the case. He observed that although the
concern is legitimate, practice has shown that is not the case. He
added that the worse groups he has seen make decisions are the so-
called independent groups, who tend to be out of control and are
dominated by interests they are supposed to be regulating or
controlling.
MR. REINWAND stressed the commissioner has the authority, and he or
she reports to the Governor. He said if a commissioner gets in
trouble with a legislator and does not do a good job, the Governor
will know about it. He felt the concern is legitimate, but in
reality, better decisions are made when the responsibility is given
to a person and that person is held to the decision. He noted
there is a whole world of experts the legislature can call on for
advice. He stressed that is different than giving the commissioner
and then two or three other groups the authority to make the same
decision. He felt that jugs up the process.
MR. REINWAND said in his 13 years in government, he found the worst
decisions came out of a process involving a lot of people. He
stated people should be given the responsibility, they should be
held accountable, and if they do not do a good job, they should be
let go.
Number 528
CO-CHAIRMAN GREEN stated he subscribes to that theory. He thought
the legislature would say if there is a question, take it to the
people because it is they who will be subjected to it and
ultimately, they make the best decisions. He told committee
members the drafter has indicated he will not be able to make the
revisions to HB 207 before the meeting adjourns. He indicated
there will be a copy of the revised version of HB 207 Tuesday
morning at the latest.
REPRESENTATIVE RAMONA BARNES recalled that Mr. Reinwand had served
as Chief of Staff for Governor Hammond and was also Deputy
Commissioner, Department of Environmental Conservation. She asked
Mr. Reinwand if he recalls any new oil and gas development
occurring during his government service.
MR. REINWAND replied while he was on the Governor's staff, the
Beaufort Sea lease sale was carried out.
REPRESENTATIVE BARNES said she could not recall any oil and gas
development taking place during the Hammond Administration.
Number 559
TOM WILLIAMS, ALASKA TAX COUNSEL, BRITISH PETROLEUM (BP)
EXPLORATION, testified via teleconference and stated BP believes HB
207 is a good piece of legislation. He said the bill represents a
positive step forward in establishing a cooperative relationship
between the state and the oil industry, based on their shared
interests and objectives, instead of one focusing on their
differences. BP applauds Governor Knowles and his Administration
for developing and introducing this legislation and thanks the OGC
and House Resources Committee for the time, effort, and study which
have been applied to improve and advance the bill.
MR. WILLIAMS stated both the CSHB 207(O&G) and the work draft CS,
version K, continues to provide DNR greater flexibility to modify
the state's royalty arrangements with producers, in order to obtain
development introduction that otherwise would be unlikely to occur.
BP believes there are several ways this good piece of legislation
can be made even better. He explained the first change would be on
page 1, line 10, of the work draft CS, version K. The work draft
currently expresses an intent that royalty reductions under this
bill would remain only if the commissioner of DNR determines that
the applicant for such a lease "would not make the additional
investments" without the royalty reduction.
MR. WILLIAMS told committee members that BP believes it would be
extremely difficult, if not impossible, for the commissioner to
make such a finding in practical terms. He pointed out that few,
if any investments are so (indiscernible) that one can say they are
clearly viable economically under one scenario and are clearly not
viable under the other. What usually happens instead is that the
opportunity is clearly more attractive under one scenario than the
other. He stated it is possible someone might proceed with an
investment under the less attractive investment scenario and it is
also possible they will not proceed with a project even under the
better scenario.
MR. WILLIAMS explained the commissioner usually will not be able to
determine conclusively whether the royalty relief represents a go
or no go factor for a given project. However, the commissioner can
determine how much of a help the project will (indiscernible). He
said BP suggests deleting the word "not" in line 10, page 1, of the
work draft CS, version K, and replacing it with the words, "be
significantly less likely to". He stated BP also has a technical
suggestion for that same sentence. He explained page 1, line 11,
of the work draft CS, version K, refers to the economic life of
"the oil or gas field." Throughout the rest of the bill, the
drafter has taken pains to include pool, or portion of a field or
pool. Therefore, BP believes the words "pool, or portion of a
field or pool" should be inserted between the words "field" and
"without."
MR. WILLIAMS stated as a result of these suggested changes, the
important part of Section 1 would read, "it is the intent of the
legislature that the commissioner of natural resources shall
determine, in all cases, that the person or persons applying for
the royalty reduction would be significantly less likely to make
additional investments that are necessary to develop or prolong the
economic life of the oil or gas field, pool or portion of a field
or pool without the approval of the royalty reduction." He noted
the alternative which Co-Chairman Green described would also be an
improvement over what is contained in the work draft CS, version K
and BP would also endorse that.
Number 615
MR. WILLIAMS said BP also believes the bill should allow the
commissioner of DNR to modify state net profit share interests, as
well as state royalties. He explained net profit payments and
royalty payments are both economic rent the state receives for
leasing its lands for oil and gas exploration and development. BP
believes that giving the commissioner greater flexibility to
address the economic situation is a good idea. Therefore, it seems
inappropriate to give the commissioner that flexibility with
respect to one form of the economic rent and not for the other. He
said just as the state may gain by modifications to the royalty
obligation under a sliding scale royalty mechanism, it could also
gain, under various situations, by allowing appropriate
modifications of the net profit share interests.
MR. WILLIAMS stated because HB 207 is not confined to situations
where the state interests would be reduced--it allows for royalties
to be increased from what they would otherwise be if economic
conditions improve over what was expected--BP believes that on page
3, line 24, of the work draft CS, version K, the words "royalty
reduction" is too narrow. He suggested the words should probably
be "royalty modification."
MR. WILLIAMS said in regard to the oversight of the commissioner to
ensure that nothing foolish or sinister goes on, BP believes
oversight is a matter the legislature has to satisfy themselves on.
He stated in terms of how BP does its business, it is felt
oversight will never be a problem. He noted whatever oversight the
legislature decides is appropriate, should work fine with BP in
practice.
(Representative AUSTERMAN joined the committee.)
Number 641
REPRESENTATIVE ROKEBERG asked why the committee should consider
including net profit share interests.
MR. WILLIAMS responded in 1979, in anticipation of the lease sale
mentioned by Mr. Reinwand, the legislature authorized the issuance
of net profit share leases for the first time and some tracts were
offered on that basis. The traditional way for leasing a property
was to put the property up for a cash bonus bid with a fixed
royalty. In 1979, some leases were offered on that same basis but
with a net profit share being the primary mechanism, rather than
the royalty share. The idea was that when cash bonuses and a fixed
royalty are involved, the state gets its money up-front and is
taking little risk in terms of whether or not the project works
out.
MR. WILLIAMS explained when a net profit share is involved, the
state is taking more of a risk. The rationale for taking a greater
risk is if the project proves to be successful, the state would get
a lot more money by having shared the risk rather than taking up-
front cash. He pointed out in making that kind of arrangement, the
net profit interest is a term of the deal, the same as the royalty
is and in economic sense, it is economic rent the lessee will be
paying to the state, the same as paying a royalty.
MR. WILLIAMS stated BP believes it is possible, in certain
circumstances, for the commissioner of DNR, in looking at a field
or project, to want to modify a net profit share lease at the same
time he is modifying a royalty. He said it is very difficult to
anticipate in advance what all the situations might be but BP
believes that since the commissioner is being given the flexibility
to modify the royalty portion of the economic rent as appropriate
in dealing with situations, it is also appropriate to allow him to
deal with the net profit interests as well, if that is appropriate
in the commissioner's mind.
Number 677
CO-CHAIRMAN GREEN said, "the change from conventional leasing,
where there is a variable bonus and a fixed royalty, in this case,
of net profits, the net profits then become the bid variable. My
problem with allowing that to be then changed at the discretion of
the commissioner says that if that is the case, then why don't we
go back to the conventional leases and also have the cash bonus be
subject to payback or changed. The difference I think that in the
cash bonus as the variable, the state and the applicant share the
risk to pay out and in the case of the net profits lease, the state
gets nothing until the applicant gets his pay out plus interest.
I think that puts that in a completely different context than what
we are trying to do here to initiate a field that would not
otherwise be made profitable.
CO-CHAIRMAN GREEN continued, "I can understand your concern that we
are talking about the economic drag down and can the state do
something about it. I would think the state would open itself up
to more or any litigation in the fact that you allow the variable
to be granted to the winner and then turn around and say because
that was the bid variable, we will now allow you to change that.
I also have a problem about the fact that does not apply to very
many leases, certainly fewer than what are involved in a productive
capacity, maybe because of the burden or maybe because of any
number of reasons. My view is that should be held off from this
bill, allow this bill to work and see how it works, because it is
my understanding that the net profits lease or leases that would be
in question are sometime in the future before that would become a
problem. On that basis, we would have a chance to review this kind
of legislation and then maybe address that at a later date."
TAPE 95-41, SIDE B
Number 000
MR. WILLIAMS felt that Co-Chairman Green raised some good points.
He noted some of the leases offered in 1979 were on a royalty bid
variable and this legislation would allow the commissioner to grant
royalty relief, even where that was the bid parameter. He agreed
it is not a good idea for the state to say they accept a high bid
and then all of a sudden renegotiate the deal to the advantage of
a certain company to beat the competition. He doubted the
commissioner of DNR would ever let himself get in that kind of
situation. He said the bridge has been crossed, in terms of the
potential for something like that to happen, with the royalty bid
variable leases, some of which were offered in 1979 and he did not
know whether or not there are any producing units are not.
MR. WILLIAMS said in regard to the net profit shares. BP has some
tracts which are on a conventional royalty basis and one very
important tract in that field which has a very high net profit
royalty interest. He stressed there is a great deal of concern,
discussion, and controversy between the lessees of that lease and
the DNR over how the costs of the field are to be allocated to that
tract in computing how much of the investment qualifies to be
recovered under the net profit share lease before the state starts
receiving its share of the net profit. He pointed out it may well
be that in a particular situation, a commissioner would prefer to
avoid those allocation issues altogether and negotiate a lower net
profit share for an entire set of leases. He noted that
flexibility would not be allowed under present legislation but
would be allowed under the suggestion made.
MR. WILLIAMS stated Co-Chairman Green's concerns are valid. He
does not have any language to offer to prevent the abuse Co-
Chairman Green is concerned about, where someone bids on a net
profit percentage or a sliding royalty percentage and then comes
back in a year or two years later and tries to get out of the deal.
He felt the commissioner should be given the flexibility to deal
with these other types of situations and to that extent, it seems
appropriate to include net profit interests, as well as royalty
interests.
CO-CHAIRMAN GREEN requested Mr. Williams to fax language which BP
might want the committee to consider on Wednesday.
Number 090
RICHARD FINEBERG, RESEARCH ASSOCIATES, testified via teleconference
and stated in regard to oversight by the public, he agreed with Mr.
Reinwand about the need for fixed responsibility. He does not
agree that the system has worked well. He stated the 30 days
notice mentioned, in regard to the public oversight, seems
reasonable but seems inconsistent with the broad scheme of the
legislation, which basically ties the hands of the public by the
granting of confidentiality, and by removing the regulations that
presently require a public written determination to make it very
clear what the commissioner shall do. He felt the weakening there
is tying the public's hands, while at the same time relying on the
public to respond in 30 days.
Number 150
MR. FINEBERG stated in regard to the factors that the commissioner
shall consider, he did not follow Co-Chairman's Green comments
about the drafter saying that the factors "include" some factors,
and does not exclude others. He stressed if economic factors are
going to be included, he hoped that pipeline economics will be
included. He noted he sent additional graphs down to the
committee, again making the general case that there is not a
substantive case being made for the need for royalty relief.
MR. FINEBERG told committee members the data they received earlier
indicates the state is over-estimating production from small or
undeveloped fields. He said of the five major producing fields on
the North Slope, only Lisburne has been worse than expectations and
all others are showing better than what was forecasted, depending
on the time frame looked at. This again leads to the question of
why a substantive analysis is not being done on the royalty
reduction issue.
Number 225
REPRESENTATIVE BARNES asked Mr. Fineberg if he is the Mr. Fineberg
who previously worked for the Office of Management and Budget.
MR. FINEBERG replied yes.
KEVIN TABLER, LAND MANGER, UNOCAL CORPORATION, testified via
teleconference and stated UNOCAL concurs with the comments of Mr.
Williams in regard to suggested changes in Section 1 of the work
draft CS, version K. He felt the new intent language is less
restrictive. He urged the committee to review some of the
testimony given in the OGC and not disregard that testimony. He
noted the OGC recognized the distinction between new and exhausted
mature fields. He also urged the committee to reconsider its
direction with regard to the zero royalty. UNOCAL does not believe
there would be a constitutional conflict. He pointed out that the
current statute provides for the ability to go to zero royalty.
Therefore, a new requirement is not being created, but rather an
attempt is being made to preserve the existing statute.
MR. TABLER said UNOCAL believes it is in the state's best interest
for the commissioner to have the flexibility to reduce royalties
down to zero, as currently provided. He stated that finding would
be supported by financial and technical data which would
demonstrate that the benefits of such action is warranted. He
added that UNOCAL believes there have been several enhancements to
the bill and concur with the changes Co-Chairman Green mentioned
earlier.
CO-CHAIRMAN GREEN stated he is very impressed with the work the OGC
has done. He stressed he wants to make sure that any changes the
House Resources Committee makes do not reflect ill upon any of the
work the OGC has done.
Number 312
REPRESENTATIVE BARNES acknowledged the fiscal note attached to HB
207. She did not feel the fiscal note is necessary and asked if
zeroing out the fiscal note could be considered. She noted on page
3, line 28, of the work draft CS, version K, it states the lessee
or lessees have to use nationally recognized consultants in
hydrocarbon production. She felt these consultants will do the job
which the department is asking for an additional oil and gas
engineer to do.
CO-CHAIRMAN GREEN said the point had been discussed that if there
was going to be an oversight by some other state jurisdiction, that
might conceivably cause a fiscal note, but added that under the
current version, that oversight goes back to the public. He agreed
a zero fiscal note might be appropriate.
REPRESENTATIVE ROKEBERG asked if the Acting Director of the
Division of Oil and Gas could answer Representative Barnes'
question. He said he understood that the Division of Oil and Gas,
in the initial budget mark-ups already lost a petroleum engineer in
the royalty section. He noted the information he received from
Representative Therriault is that if a bill such as HB 207 passes,
the Division of Oil and Gas would have a case to make for having
that engineer reinstated.
Number 344
KEN BOYD, ACTING DIRECTOR, DIVISION OF OIL AND GAS, DNR, testified
via teleconference and stated the fiscal note provides for a
petroleum engineer. He said the division currently has two
petroleum engineers in the division--one is a unit manager and the
other is the petroleum manager and also supervises the royalty
accounting section. He stressed the division can do more work in-
house with people in-house. He noted there is a provision in the
bill to do the work outside with other contractors. He pointed out
that institutional knowledge becomes something very important--the
more you know, the faster you work, and the better job you may do.
MR. BOYD felt it was up to the committee as to how much work they
believe can be done in-house. He noted he does not know how many
of these requests may come forward. He reiterated that he has
found the more work done in-house, the more consistent the results
and generally speaking, the better the results. He anticipated
using contractors more for number crunching, not for policy making
because they will report to the Administration--that is what an
employee does and he or she can then be given policy direction. He
summarized the petroleum engineer is there to do what is
anticipated as extra work.
REPRESENTATIVE BARNES felt Mr. Boyd does not understand that state
employees do not set policy--the legislature does and the employees
are there to carry polices out. She understood how the division
would like to have another body, as most departments would like to
have other bodies. She said this is a clear case where the private
sector is paying the bill and the department is simply trying to
add another body for whatever purpose. She stressed she wants a
zero fiscal note.
CO-CHAIRMAN GREEN agreed with Representative Barnes. He stated if
there are numbers to be crunched, that should be done by the
contractor to verify that the applicant's case is justified. Then
it is up to the commissioner to accept or reject. He said that
does not justify another in-house body.
MR. ROKEBERG passed out two conceptual amendments regarding
subsection (3). He explained one of the amendments is based on
CSHB 207(O&G) and the other amendment is a tuned-up version that
was provided by the commissioner's office. He felt subsection (3)
is the most important part of the bill and urged committee members
to review the amendments.
CO-CHAIRMAN GREEN urged committee members to also consider
modifications to subsections (s) and (t) which make those sections
similar to subsection (p) of the existing bill.
ADJOURNMENT
There being no further business to come before the House Resources
Committee, Co-Chairman Green adjourned the meeting at 9:22 a.m.
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