Legislature(1995 - 1996)
04/10/1996 08:07 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
April 10, 1996
8:07 a.m.
MEMBERS PRESENT
Representative Joe Green, Co-Chairman
Representative William K. "Bill" Williams, Co-Chairman
Representative Scott Ogan, Vice Chairman
Representative Alan Austerman
Representative Ramona Barnes
Representative John Davies
Representative Pete Kott
Representative Don Long
MEMBERS ABSENT
Representative Irene Nicholia
COMMITTEE CALENDAR
HOUSE BILL NO. 344
"An Act authorizing the commissioner of the Department of Natural
Resources to negotiate and enter into timber sale contracts that
provide for local manufacture of high value-added wood products;
and establishing an Alaska Forest Products Research and Marketing
Program within the Department of Commerce and Economic
Development."
- MOVED CSHB 344 (RES) OUT OF COMMITTEE
HOUSE BILL NO. 548
"An Act authorizing, approving, and ratifying the amendment of
Northstar Unit oil and gas leases between the State of Alaska and
BP Exploration (Alaska) Inc.; and providing for an effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 344
SHORT TITLE: VALUE-ADDED TIMBER SALES; MARKETING
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
JRN-DATE JRN-PG ACTION
05/10/95 2085 (H) READ THE FIRST TIME - REFERRAL(S)
05/10/95 2085 (H) RESOURCES, FINANCE
05/10/95 2085 (H) FISCAL NOTE (DNR)
05/10/95 2085 (H) 3 ZERO FNS (DCED, CRA, UA)
05/10/95 2085 (H) GOVERNOR'S TRANSMITTAL LETTER
09/19/95 (H) RES AT 9:00 AM
02/21/96 (H) RES AT 8:00 AM CAPITOL 124
02/21/96 (H) MINUTE(RES)
02/28/96 (H) RES AT 8:00 AM CAPITOL 124
02/28/96 (H) MINUTE(RES)
04/10/96 3673 (H) RES RPT CS(RES) NT 7DP
BILL: HB 548
SHORT TITLE: NORTH STAR OIL & GAS LEASE PAYMENT
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
JRN-DATE JRN-PG ACTION
03/28/96 3434 (H) READ THE FIRST TIME - REFERRAL(S)
03/28/96 3434 (H) RESOURCES, FINANCE
03/28/96 3434 (H) FISCAL NOTE (DNR)
03/28/96 3435 (H) GOVERNOR'S TRANSMITTAL LETTER
03/28/96 3436 (H) ATTACHMENT
04/03/96 (H) RES AT 8:00 AM CAPITOL 124
04/03/96 (H) RES(MINUTE)
04/10/96 (H) RES AT 8:00 AM CAPITOL 124
WITNESS REGISTER
JOHN T. SHIVELY, Commissioner
Office of the Commissioner
Department of Natural Resources
400 Willoughby Avenue
Juneau, Alaska 99801-1724
POSITION STATEMENT: Testified in support of HB 548
JOHN MORGAN, President
BP Exploration (Alaska), Incorporated
P.O. Box 196612
Anchorage, Alaska 99519
Telephone: (907) 564-5429
POSITION STATEMENT: Testified in support of HB 548
BILL CHEEK, Vice-President and General Manager
Alaska Petroleum Contractors, Incorporated (APC)
6700 Arctic Spur Road
Anchorage, Alaska 99518-1550
Telephone: (907) 344-6400
POSITION STATEMENT: Testified in support of HB 548
RANDY RUEDRICH, General Manager
Doyon Drilling, Incorporated
101 West Benson Road, Suite 503
Anchorage, Alaska 99501
Telephone: (907) 563-5530
POSITION STATEMENT: Testified in support of HB 548
DAVID GINNETT, President
Quality Fabrication, Incorporated
360 East 100th Street
Anchorage, Alaska 99515
Telephone: (907) 344-4526
POSITION STATEMENT: Testified in support of HB 548
JAMES UDELHOVEN, President and Chairman
Board Udelhoven Oilfield Systems Services;
Board Member, Alliance Board Member
11401 Olive Lane
Anchorage, Alaska 99515
Telephone: (907) 344-1577
POSITION STATEMENT: Testified in support of HB 548
SMOKEY NORTON, Equipment Manager
Peak Oilfield Service
5061 Buckingham Way
Anchorage, Alaska 99501
Telephone: (907) 561-8844
POSITION STATEMENT: Testified in support of HB 548
TOM REDMOND, Human Resources Manager
Camco Products and Services Company
4831 Old Seward Highway
Anchorage, Alaska 99503
Telephone: (907) 562-2132
POSITION STATEMENT: Testified in support of HB 548
JED WHITTAKER
P.O. Box 1093
Unalaska, Alaska 99685
POSITION STATEMENT: Testified against HB 548
CHUCK SULLIVAN, General Manager
Parker Drilling
Member of the Alliance
10560 Old Seward Highway
Anchorage, Alaska 99503
Telephone: (907) 563-2226
POSITION STATEMENT: Testified in support of HB 548
DAVE HAUGEN, Vice-President
Lynden, Incorporated
1029 West 3rd Avenue, Suite 150
Anchorage, Alaska 99501-1981
Telephone: (907) 279-7501
POSITION STATEMENT: Testified in support of HB 548
BILL ALLEN, Chairman of the Board
VECO Corporation
813 Northern Lights Boulevard
Anchorage, Alaska 99501
Telephone: (907) 277-5309
POSITION STATEMENT: Testified in support of HB 548
ACTION NARRATIVE
TAPE 96-52, SIDE A
Number 000
CO-CHAIR BILL WILLIAMS called the House Resources Committee meeting
to order at 8:07 a.m. Members present at the call to order were
Representatives Green, Williams, Ogan, Austerman, Davies, Kott and
Long. This meeting was teleconferenced to Anchorage and Fairbanks
on an observation basis only. A quorum was present.
CO-CHAIR WILLIAMS said the agenda included CSHB 344 (RES) and HB
548.
HB 344 - VALUE-ADDED TIMBER SALES; MARKETING
Number 0049
CO-CHAIR WILLIAMS announced the agenda was CSHB 344 (RES), dated
February 19, 1996. He said CSHB 344 (RES) was supported by
industry in the interior as well as in other parts of the state.
Number 0115
REPRESENTATIVE SCOTT OGAN made a motion to move CSHB 344 (RES) from
the committee with individual recommendations and the attached
fiscal note. Hearing no objection CSHB 344 (RES) was moved from
the House Standing Committee on Resources.
HB 548 - NORTH STAR OIL & GAS LEASE PAYMENT
Number 0236
CO-CHAIR GREEN announced that the next item on the agenda was HB
548, an act authorizing, approving, and ratifying the amendment of
Northstar Unit oil and gas leases between the State of Alaska and
BP Exploration (Alaska) Inc.; and providing for an effective date.
JOHN T. SHIVELY, Commissioner, Office of the Commissioner,
Department of Natural Resources (DNR), was first to testify on HB
548. He said he would give a brief overview, explain the history
behind the leases, some rational for why the Administration is
making the changes in the royalty and answer questions. He
mentioned the other people who wished to testify and said he could
be available for questions at a later date.
Number 0299
COMMISSIONER SHIVELY said Northstar is an oil field located
offshore in Northern Alaska. He said the original state leases
were leased in 1979, along with two federal leases in a federal
offshore lease sale. He said the provisions in the four leases, in
1979, provided for a 20 percent base royalty with a bid variable
listed as net profits. He said the average net profits on those
leases were 89 percent net profit. In addition, in 1983, another
lease was issued at a 12.5 percent base royalty with a 40 percent
set net profit with a bonus bid of 72,000 for the state. He
clarified that there are five leases being discussed in conjunction
with the Northstar Unit.
Number 0364
COMMISSIONER SHIVELY said, in 1979, everyone was predicting that
oil prices would continue to increase from $30 per barrel, in 1979,
to $60 to $100 per barrel in 1996. He said the leases were bought
by a consortium headed by Amerada Hess. He said the prospect for
these leases initially looked good and it was believed that there
might be over a billion barrels of oil, but Amerada Hess found
there was less than 130 million to 160 million recoverable barrels
of oil.
Number 0422
COMMISSIONER SHIVELY said in 1993, the Department of Energy did a
study which included Northstar. The study's conclusion was that
Northstar was uneconomic largely due to the net profit provision.
He said Amerada Hess, ultimately, came to the same conclusion
because of the amount of oil and the fact that they were projecting
a development cost of $1.4 billion. He said, close to the end of
the lease term, Amerada Hess offered the leases up for public sale
and had two bidders at the sale. He said BP Exploration bought the
leases and in January of 1995 the leases were transferred. In
April of 1995, BP began a three year development plan which was
approved by the DNR.
Number 0474
COMMISSIONER SHIVELY said BP began discussing the net profits issue
with DNR last spring when HB 207 was being debated. He said, at
that time, BP suggested that the net profits be included as part of
HB 207. He said, because of the contention surrounding HB 207, the
Administration did not feel that it was a good thing to add yet one
more thing to the bill. He said DNR was sympathetic to the fact
that there was a very high net profit take on the leases and said
he would talk with BP as the company developed their economics.
From the beginning of these discussions, he indicated to BP that he
did not have the authority to do this, as commissioner, and that
any agreement would have to come before the legislature for
approval. He said he believed this interpretation of this decision
was correct and pointed to the Attorney General's opinion regarding
this issue. He said, because of the ramifications of this
agreement, it is important to give the agreement public review
through the legislative hearings.
Number 0559
COMMISSIONER SHIVELY said that one of the reasons the discussions
began so late, in October and November, was the time it took to
develop the economic model and agreeing to its assumptions. He
said the state does not have the resources that BP has, but that
there was, ultimately, an agreement which provides a 20 percent
base royalty for all five leases. He said this 20 percent remains
on the four leases and is raised on the lease that was at 12.5
percent. He said another part of the agreement is that BP cannot
come in and ask for changes in the future. He said the
Administration substituted, what is being termed, a supplemental
royalty for the net profit provision. He said the supplemental
royalty is based on oil prices which starts at a floor of $17.35
Arctic North Slope (ANS) price and is adjusted upward for inflation
at half the producer price index and caps out at an additional 7.5
percent. He said if prices go up considerably the state could be
taking a 27.5 percent royalty from these leases.
Number 0650
COMMISSIONER SHIVELY said two other things are important to discuss
which are outside the economics of the situation, one is that this
is a "use it or lose deal." If the project is not sanctioned by
the BP Board a year from now, the state gets the leases back and
can offer them out for bid. He said the other thing to consider is
that net profit leases are a declining asset for the state because
these leases contain a development account. He said all of the
costs that an oil company expends while exploring and developing
the lease goes into this development account. He said this account
earns interest at prime over time. He said as a result of the
lawsuit, which the state lost, the development account goes to the
company which currently has the lease, rather than to the company
which spent the money. He said BP inherited a sizeable development
account of over $200 million when they bought these leases and is
currently earning interest at prime. He said the longer it takes
to develop these leases, the less net profits the state will
receive.
Number 0720
COMMISSIONER SHIVELY said BP is currently in a three year
development plan which the state has approved. The earliest the
state could order BP into production would be April of 1998, if the
state chooses to do so and added that this has never been done. He
said, if this happens, BP could agree and go ahead, BP could drop
the leases and they could go out for rebid or BP could sue the
state. He said all three of those scenarios could cause economic
problems for the state. He said the "use it or lose it" provision
in the agreement increases the certainty of what is going to happen
on those leases.
Number 0780
COMMISSIONER SHIVELY said the Administration has strengthened the
local hire and contracting language and added that there is a
difference between what can be done legally and what BP will commit
to morally. He said the moral commitment is more important because
constitutional constraints do not allow DNR to say that all
Alaskans are going to be hired. He said the Administration can put
pressure on BP to do so with the assistance of the legislative
leadership.
Number 0813
COMMISSIONER SHIVELY said DNR has developed a fairly complex
economic model which can be run in a variety of schemes such as
money of the day, 1996 dollars or net present value. He said he
choose to look at 1996 dollars as it was easiest to understand, but
said other analysis could be provided. He said, based on the
Department of Revenue (DOR) mid-case price scenario, the
supplemental royalty will net the state about $37 million over the
life of the project. He said the total state take, with taxes and
royalties, is about $435 million. He said, using the same
assumptions, if the leases were to be developed today, under net
profits, the state would net about $85 million which is a
significant difference if you believe that the leases would be
developed today. He said, in order for the state to develop HB
548, the state had to believe that BP would not develop today.
Number 0924
COMMISSIONER SHIVELY said looking at the net profit royalty over
time assuming that the state got through the development plan and
ordered BP into production, BP would come into production around
the year 2002. He said the net profits would provide $41 million
for the state if development began in 2002. He said this shows how
the net profits decline over time due to the development account.
Number 0973
CO-CHAIR GREEN asked if the $4 million difference was on a
discounted basis.
Number 0981
COMMISSIONER SHIVELY said all the numbers are on 1996 dollars and
said if you use discounted dollars it would be less. He said there
are other positive things that can be presented regarding this
agreement, but said he could not give any economic details. He
said developing Northstar and putting more oil into the pipeline
drives down the tariff for all of the North Slope oil. He said
there are additional (indiscernible) taxes for the North Slope
Borough, some of which comes to the state. He referred to an
offshore oil lease sale occurring in a couple of years and said if
development could occur with an undersea buried pipeline it would
increase the lease sale bid.
Number 1038
COMMISSIONER SHIVELY said HB 548 is in the state's best interest,
but it is a subject worthy of discussion as it is the first time
the state has considered changing a bid variable. He said
royalties were changed before, but not the bid variable. He said
there are short term and long term ramifications for the state and
that public review is important. He said the Administration will
provide information, but added that certain pieces will have to be
given under confidentiality. He said DNR will try to minimize
those aspects and the time needed to be spent in executive session
will be very short.
Number 1107
REPRESENTATIVE JOHN DAVIES said he would like an opportunity, at
some point, to have a longer session in a working group or an
executive session to look at the economic model, the sensitivities
and the various assumptions.
Number 1127
COMMISSIONER SHIVELY said the Administration is prepared to run the
model publicly, but there are certain assumptions that DNR uses
that are confidential. He added that there are comparable
assumptions that could be used in the model which are publicly
available.
Number 1152
CO-CHAIR GREEN said future meetings would be held on HB 548,
probably in the evening.
Number 1154
REPRESENTATIVE DAVIES asked that those future meetings focus on the
public model.
Number 1216
JOHN MORGAN, President, BP Exploration (Alaska), Incorporated, was
next to testify. He said the original leases were awarded to
Amerada Hess and Shell, who discovered 130 million barrels of
recoverable oil. He said, in 1991, Amerada Hess and Shell made an
evaluation of the likely development costs in conjunction with a
major engineering contractor and determined that the cost would be
$1.5 billion and decided that this was not an economic development
proposition for them. He said those companies put the leases on
the market in 1994, with the eventual sale to BP in 1995. He said
this was an open bid sale for the leases which means that there was
a market test in relation to these leases.
Number 1278
MR. MORGAN said when BP acquired these leases they understood the
nature of the net profit interest, that it would be a barrier to
developing the leases. He said BP felt there would be an
opportunity to have discussions with the state to try and find an
alternative arrangement.
Number 1297
MR. MORGAN said BP was interested in acquiring those leases
because, over a period of time, BP has been looking at ways to
reduce the costs of some of the smaller scale developments, an
important part of the economic future of oil development in Alaska.
He said, as a result of those studies, BP felt there was a
possibility of developing Northstar at the cost, in the range, of
$350 million to $400 million. He said, at that cost, there was
value in developing Northstar, this was the basis for BP's belief
that they would be able to enter into an negotiation with the
state.
Number 1335
MR. MORGAN discussed the problem of the high net profit, averaging
89 percent, over these leases. He said BP has never said that
developing these leases would be uneconomic under the current
arrangement. He said, in terms of the kind of value or rate or
return that would be available, developing these leases would be
economic. He said the basic problem, with the net profit interest
arrangement, is that it creates a fundamental misalignment between
the oil companies and the state. He said the most obvious evidence
of this is that when, eventually, the net profit interest cuts in.
He said the net profit begins after the recovery of the accumulated
development costs plus accumulated interest. He said, when the net
profit interest cuts in, the income available to the producer
disappears to almost nothing. He said the profit would be less
than 50 cents per barrel.
MR. MORGAN said net income per barrel is one of the key competitive
indicators in the oil and gas industry and BP would not, as a
matter of policy, enter into a situation and go on producing when
BP was obtaining a net profit at that level. He said, at that net
profit, a company would contemplate an oil field shut down on an
oil field that was still capable of producing.
Number 1423
MR. MORGAN said other ways that a net profit arrangement creates a
misalignment is that the lower BP is able to drive the development
costs, through staff creativity and technological development, the
greater the penalty as the development account is decreased. He
added that it also speeds the time the field reaches the point
where the net profit interest would cut in.
Number 1450
MR. MORGAN said in almost all cases when you develop an oil field,
you keep working on it after the development has taken place.
You're looking for ways to bring further technology to bear in it
to try to increase the level of recovery from the reservoir. He
said when all the benefit of an expansion is going to go to the
state, there is very little incentive to put resources to work to
improve the recovery level. He said this is another way that net
profit creates a misalignment.
Number 1489
MR. MORGAN said there are some 40 odd leases that exist with net
profit interest terms some of which are producing, some of which
are partially explored, but Northstar is the only one that has a
development prospect. He said the reason why those other oil
leases do not create a misalignment is that the cost of development
is so high that the prospect of the net profit interest cutting in
is pushed way out into the future. He said, if the net profit
interest cuts in as it might do, these examples are isolated leases
within a whole set of leases that make up the field. He said all
the leases are going to be combined and a dramatic economic affect
is not going to be felt as it would with the Northstar project.
Number 1551
MR. MORGAN said BP has accepted the "use it or lose it" provision
which basically says that the Board of BP must fully approve the
financing of this development a year from the time it is approved
by the state. He added that he hopes the board will approve it
ahead of this time, perhaps in the fall of 1996. He said BP is
currently in the process of an environmental impact statement as
well as doing the detailed engineering work. He said HB 548 is not
any type of concession or give away on the part of the state, but
was a carefully and professionally negotiated arrangement to remove
a barrier to the early development of an oil field for the benefit
of the state.
Number 1551
MR. MORGAN said the field has about 130 million barrels of
recoverable reserves and a development cost at approximately $380
million. It will gear production toward the beginning of 1999 with
the plateau production of 50,000 barrels of oil per day. He said
the benefit to the state would be made up of revenue, BP's expended
capital and the BP operating costs. He said this amounts to a
benefit of $1 billion. He said BP believes that there are a great
deal of resources to be developed on the North Slope which are
known and available. He said the estimated amount is about 5
billion barrels thorough heavy oil prospects, through developed
satellites around existing fields, enhanced oil recovery in
existing fields and through these smaller oil fields which have
between 100 million to 200 million barrels of reserves. He said
Northstar would be the first of these developed smaller fields and
the first developed offshore fields utilizing new technology, for
Alaska, regarding a buried subsea pipeline.
Number 1715
MR. MORGAN said BP is committed to hiring Alaskans to work on the
project, to use Alaskan contractors and to build the facilities to
the maximum extent in Alaska. He said the oil industry has the
best history of hiring Alaskans in Alaska by a long way. He said
there has been a downward trend in the number of Alaskan residents
hired by operators and contracting companies. He said BP, ARCO and
a number of contractors have been working to put together a set of
plans addressing the issue of Alaska hire to improve this record.
He said the industry is committed to working on those issues and
plans have been presented, quite recently, to the Administration.
Number 1740
MR. MORGAN said, over the peak construction period, Northstar would
directly employ some 450 to 520 people. In the operating mode,
Northstar would have some 50 permanent jobs. He mentioned the
multiplier effect which is for each direct job created one
additional job is created in the community. He said Alaskan
contractors will do the vast majority of the work on Northstar and
BP has been working, since the beginning, on an alliance contract.
This contract has the contractors working alongside BP in
developing their approach. He said the alliance includes AIC a
subsidiary of Cook Inlet Region, Incorporated(CIRI) who will work
on Gravel Island, Houston Contracting a subsidiary of Natchiq,
Incorporated who will be involved with pipeline installation, VECO
Corporation and Alaska Petroleum Company (APC) who will be involved
with facilities, fabrication and installation. He said contracts
would be awarded in the areas of trucking and pipeline fabrication,
et cetera.
Number 1763
MR. MORGAN said the overall cost is around $380 million, $140
million of which is likely to be spent out of state. He said $100
million of that is for equipment which cannot be acquired in the
state such as valves and tubulars. He said BP will spend between
$200 million and $250 million in the state, assuming that BP will
be able to purchase things in the state such as fabrication.
Number 1810
MR. MORGAN said the cost of fabrication would be about $60 million
of the $380 million overall development cost. He said if you look
at that based on what can be done in the state and on a commercial
decision process, probably $10 million would be spent in the state.
He said the contractors in the state have become competitive with
in the manufacture of smaller, truckable modules used in Niakuk and
Milne Point. He said the contractors have not ever been able to
tackle the larger, more complex modules. He said BP will seek to
put an additional $30 million to $40 million of fabrication work
into Alaska.
MR. MORGAN said BP is willing to accept some additional cost,
compared to buying from the Lower 48 states, to try to bring these
larger, more complex modules here in the state. He said BP is also
trying to build the modules in a way that allows them to be
preassembled, put on to barges, and then sea lifted up to the North
Slope. He said this is business, in the past, that has always gone
to the Lower 48 states. He said BP is committed to work with VECO
and APC to create a new business opportunity for the state.
Number 1892
MR. MORGAN said HB 548 involves other things besides the economics
of replacing net profit interest with a new approach. He said the
state has been very flexible and innovative in going forward with
that notion. He said this notion is quite profit related, if you
think of the oil prices as a proxy for profit, when prices are up
and profits are higher the state would then take a higher share.
He said it also creates a strongly aligned interest between BP and
the state with an arrangement that would share the benefits of any
improvements. He said this, plus the smaller offshore oil
possibilities, created jobs, revenues and business opportunities
which makes HB 548 an exciting deal for BP and the for the state of
Alaska.
Number 1949
REPRESENTATIVE DAVIES expressed concern regarding hiring local
people and asked what is being done to promote jobs for Alaskans
across the state.
Number 2004
MR. MORGAN mentioned a number of contractors that have been working
with BP on the Northstar project including AIC and Houston
Contracting Company Alaska Limited (HCC) which have strong records
of Alaska hire and strong records of Fairbanks hire. He said
Fairbanks companies will be in contention for the upcoming
contracts.
Number 2030
MR. MORGAN said on the more general issue of jobs, BP and ARCO
brought together a large number, roughly 20, contractor companies
into a conversation to see what could be done about this situation.
The contractors got engaged, a number of work groups were held and
a number of recommendations were made. He said these
recommendations fall under three broad headings including:
Training, to understand what the demand for labor in the state is
going to be and insuring that an Alaskan work force is being
adequately trained to meet that demand; hire, where the industry
acknowledges that they have not done everything they could to
insure that jobs are being advertised properly to hire Alaskans as
a first priority; and the third area was on measurement, if things
are measured and data is created it promotes a route to
improvement. He said all the involved companies have agreed to
measure and make available their individual data and most companies
have agreed to set targets, make them available and measure
performance against those targets. He said there is a detailed
report available and said it would be made available to the
legislature.
Number 2136
REPRESENTATIVE DAVIES asked if project labor agreements were
considered and added that these type of agreements achieve the
highest possible Alaska labor hire and assist with the training
issue.
Number 2158
MR. MORGAN said he would like to see the unions come in alongside
the contractors and accept the same kind of program that the
contractors are now talking about. He said there is no simple
Alaska hire definition or issue because it depends on where you
stand. He said you can talk about the numbers of hire at the level
of the state, but said if he goes and stand in Barrow then it
sounds more like an issue of Native hire or if he stood in
Fairbanks it could sound like union hire or skilled non-union
people. He said he did not see how a project labor agreement would
be the solution to this issue, but said he would like to see the
unions adopt the same type of program. He said the challenge is to
find the right skills in the work place to deliver the quality of
work that is needed and balance that within the community.
Number 2222
CO-CHAIR GREEN referred to the outsourcing issue in the paper where
contracts were awarded to companies in Denver and clarified that
60, 65 to 70 percent of development costs might be spent in Alaska.
He asked what sort of local program is being developed which would
help local contractors, both labor and fabricators, to know what
sort of things are going to need to be built.
Number 2256
MR. MORGAN said BP has been talking with the contracting community
to discuss the needs of this project. He said the biggest area of
change is in module fabrication. He said the other aspects of the
project are not unusual or difficult in terms of the capabilities
of existing companies within the state. He said the two
fabrication companies, in Anchorage, would be full with the
Northstar modules if the larger modules can be brought into the
state. He said if there is any other business to be done, then
those companies would need to be increased, either in Anchorage or
in some other part of the state.
Number 2301
MR. MORGAN said the more challenging piece is a need for a facility
which would allow the assembly of those modules in a way which
allowed them to be put on a barge with an eventual sea lift up to
the North Slope. He said BP knows that there will be some premium
in having that construction in the state due to productivity
issues, partly because of wage rates. He said BP is willing to
cover these additional costs, but added some offset would occur if
the modules could be barged to the North Slope from Alaska.
Number 2294
MR. MORGAN said BP is willing to work with contractors and anyone
else that might be appropriate such as the municipality of
Anchorage, the state, to see if, by the summer of 1996, those
facilities are made available on the right time scale and the right
quality. He said he is optimistic that this can occur.
Number 2352
CO-CHAIR GREEN asked if sanctioning had begun.
Number 2355
MR. MORGAN said, no, at this stage there is only a conceptual
engineering plan. He said to go to sanctioning would require a
detailed engineering process which BP is beginning. He said BP has
probably spent around $25 million, since acquiring these leases, on
this engineering work.
Number 2374
MR. MORGAN said the other issue involves the environmental impact
assessment with the Core of Engineers. He said, because this is an
offshore development, it raises a number of environmentally and
culture challenges. He said these challenges are being taken
seriously and if they can be addressed cooperatively, especially
with the residents of the North Slope, BP will overcome them.
Number 2397
MR. MORGAN said BP is confident about the technology and the
ability to deal with ice scouring. He said BP hopes, by the fall,
to understand any major issue which might arise from that
environmental assessment. He said major uncertainties would delay
the sanctioning of the project. He said the Board would want to
know if the key risks were manageable and under control.
Number 2419
CO-CHAIR GREEN said BP is working with VECO, ACI and HCC and asked
if contracts were going to be bid among local contractors such as
labor suppliers and fabricators or whether BP was limited to the
point where those were the only ones available.
Number 2434
MR. MORGAN said the alliance concept limits the choices. He said
the nature of the concept is to allow the contractors to work
alongside BP from the beginning of the project, working as a team
to develop a contract which will "incentivize" the contractors to
work together to deliver the best possible outcome for this
project.
TAPE 96-52, SIDE B
Number 0000
MR. MORGAN said the contractors will have to decide whether it is
better to bid or whether they feel one of the existing alliance
partners has the right qualities and skills to come into the
agreement.
Number 0021
REPRESENTATIVE DON LONG expressed concern regarding ice scouring,
and said Nuiqsut is also concerned. He said HB 548 was described
as not being a giveaway, but a carefully orchestrated agreement
between BP and the state of Alaska and asked if BP would provide a
model to allow the Legislators to show their constituents that HB
548 is not a give away.
Number 0046
MR. MORGAN said Commissioner Shively talked about the economic
model earlier and said this is part of the answer. He said the
other part of the answer is somewhat less quantifiable, the answer
is around the issue of development opportunities for the state
regarding creating employment and business opportunities. He said
there would be some approaches to valuation regarding the creation
of jobs, but it would be more difficult to quantify this type of
situation. He said if Alaska can move ahead and develop a business
opportunity regarding the modules, not only will Alaska businesses
develop modules for work done in Alaska, but they might be able to
provide modules for the Far East markets.
Number 0105
REPRESENTATIVE OGAN asked if a precedent was being set that a lease
could be renegotiated that would compromise the established bidding
process.
Number 0153
MR. MORGAN said HB 548 does not set a precedent as there are prior
precedents. He referred to a situation in 1991, the Thetis Island
leases, where a net profit lease was amended to delete the net
profit interest and insert a modification in royalty.
Number 0179
MR. MORGAN said Northstar was the only lease around which had net
profit interest was used as the bid variable. He said there were
other bid rounds where net profit interests were incorporated, but
the state pre-set the level of net profit interest, normally
between 30 percent and 40 percent. He said the state no longer
used this approach to leasing after 1984 and he said he believed
the reason for this was because net profit lease creates
misalignments between the state and the industry. He said the
agreement also had to do with the fact that oil prices have not
increased as was predicted. He added that HB 207 allows DNR to
make amendments to lease terms surrounding the royalty arrangements
which would allow marginal fields to be developed. He said there
would be changes made to taxes and regulations over the years.
Number 0240
MR. MORGAN said the judgement regarding the changes made to the
lease seems to be a proper one and asked the committee if it made
sense to not change it and delay the development of this field. He
said this open legislative process allows for concerns to be
brought forth, and that a determination will be made that the
benefits and the scrutiny have been proper.
Number 0277
REPRESENTATIVE DAVIES said some concern has been expressed by the
legislature that HB 548 will either pass or fail without allowing
any changes to be made in the agreement. He said he could
understand the difficulty of negotiating with 61 people, but said
that the Legislature is being asked to look at a complicated
arrangement and it is conceivable that some facet has been
overlooked in the discussions. He said if this arises, then there
is no mechanism for a member of the legislature to affect a change
and asked if there could be a mechanism for dealing with this
situation.
Number 0336
MR. MORGAN said DNR made it clear to BP that any agreement would
need to come before the legislature for approval. He said it was
understood that HB 548 would be treated like some of the royalty
sale arrangements, as a lease amendment to be voted on. He said
negotiating with the entire legislative body would not be
practical, but added that BP would want an open agreement to show
that it was fair and satisfactory to everyone.
Number 0418
REPRESENTATIVE ALAN AUSTERMAN referred to the net profit interest
and asked if HB 548 leaves the net profit interest in the lease
agreement or if it is eliminated totally.
Number 0438
MR. MORGAN said it eliminates it totally, so that the development
fund has no relevance anymore. He said the over $200 million of
accumulated cost in the development funds is eliminated. He said
it is a complex structure, like the tax framework, requiring
detailed accounting as there are specified rules about the
definition of net profit. He said all of the net profit is removed
and now the lease term would have the basic 20 percent royalty and
a supplemental royalty which goes up to a maximum of 27.5 percent.
Number 0486
REPRESENTATIVE AUSTERMAN asked if there was discussions of lowering
the net profit percentage, rather than just eliminating it.
Number 0495
MR. MORGAN said he did not conduct the negotiations, but said his
sense was that the discussions were around the misalignment concept
and the elimination of the net profit concept with the idea that
something could be found to replace it. He said there might have
been some discussion regarding a lowering of the net profit
percentage.
Number 0528
CO-CHAIR GREEN said there was an estimate of recoverable reserves
based on a few wells and asked a hypothetical question regarding
additional oil reserves.
Number 0550
MR. MORGAN said BP could answer that hypothetical questions, but
said that it involved the economic modeling issues and the
assumptions surrounding it. He said this assumption certainly
includes the 130 million barrels of recoverable reserves, which has
a range around it as does the $380 million development cost. He
said BP has assumed some additional recovery mechanisms, included
in the development scheme, which would get to the 130 million
number. He said other options could increase that number.
MR. MORGAN said, aside from the discovery well, five other
appraisal wells were drilled on this reservoir. He said there is
a pretty good understanding of the reservoir and the sense is that
there is not a vast range of uncertainty. He said the oil quality
is exceptionally good in these wells, the highest quality of oil on
the North Slope. He said other assumptions could be made, but it
would result in two models and create additional confusion.
Number 0612
CO-CHAIR GREEN asked if these hypothetical scenarios had been run
through the model.
Number 0621
MR. MORGAN said the DNR has run a number of sensitivities in the
course of the negotiation, as did BP.
Number 0627
CO-CHAIR GREEN, "the question was more of directionally do you have
a view as to what would happen if one of those cases were to ...you
have come through with a ...some sort of a super duper terciary
recovery and you increase recovery and set a course with 42 gravity
oil, that's a..."
Number 0642
MR. MORGAN said it is nice to concentrate on the up side of a
situation, but declined to answer the question. He mentioned the
possible down side of a situation.
Number 0658
CO-CHAIR GREEN said the Attorney General's opinion, of how you
handle net profits compared to conventional royalty, indicated that
net profits can be considered as a royalty and asked if HB 548 was
considered as a part of HB 207.
Number 0692
MR. MORGAN said he could not answer this question, and added that
there is a range of opinion on what the commissioner's authority
is. He said there has been some discussion on what that authority
might be, but BP has never been uncomfortable that HB 548 should
come to the legislature rather than just being signed off by the
commissioner.
Number 0748
BILL CHEEK, Vice-President and General Manager, Alaska Petroleum
Contractors (APC), was next to testify. He said APC is the largest
subsidiary of Arctic Slope Regional Corporation (ASRC). He said he
is showing support of Northstar from a contractors point of view
and added that APC is one of the largest alliance partners in this
development from the construction, engineering point of view. He
said APC is excited about the possibilities that this project
brings for the whole Alaskan community such as increasing Alaskan
employment and gives Alaska the opportunity to compete in an
international market with mega module fabrication.
Number 0792
MR. CHEEK said in 1988, APC began fabrication of mini-modules in
Alaska. He said APC was able to competitively bid to build mini-
modules and was able to be successful in competing with contractors
outside Alaska.
Number 0814
MR. CHEEK said, in 1996, all mini-modules are built in the state of
Alaska. He said the industry views these mega-modules as the same
type of opportunity. He said to build mega modules in the state
requires some type of premium and said perhaps it is true in the up
front planning portion. He said given time and ways to improve the
way business is conducted in Alaska, these costs will be reduced to
allow for competitiveness in the same manner that the mini-modules
are competitive.
Number 0843
MR. CHEEK said the Northstar project is important in terms of
smoothing out upcoming construction projects for 1997 as it is
forecasted to be a down year in the oil patch, in terms of
projects. He said if Northstar will not be developed in 1997 there
is a strong possibility that a later development will interfere
with other projects slated for the North Slope such as ARCO's
Coleville project. He said if both of those projects hit in the
same year, there will be problems for the construction industry to
handle that type of fabrication and construction work in Alaska.
Number 0875
MR. CHEEK said BP is sincere regarding the promises they have made
regarding the utilization of local contractors and local hire. He
said, in working with the project development team on the Northstar
project, the alliance is actively pursuing the identification of
skills needed to do this project. He said the alliance is also
identifying their data bases of local skills and matching those
with the identified skills. He said BP has made a commitment to
utilize local contractors to perform the mega-module fabrication
and overall industry is excited about the possibilities that this
project will bring and are proud to be an alliance partner with BP.
Number 0925
REPRESENTATIVE DAVIES asked him to list the possibilities and the
considerations that are being considered to improve the rate of
Alaska hire such as the amount of subcontracting that will be made
available for Alaskans.
Number 0966
MR. CHEEK said the subcontracting for the Northstar project has not
been identified yet and will be a function of the overall
management team. He said this team will identify the types of
things which can't be performed by the alliance partners. He said
APC was one of the companies that participated in the competitive
Alaska hire workshops in developing a plan to improve overall
Alaska hire.
Number 1020
MR. CHEEK said APC, looking at the Department of Labor 1994
numbers, averaged about 1,500 employees with an Alaska hire
percentage of 74 percent. He said this was as good as, or better
than, any other contractor in the state. He said APC is interested
in improving this number by doing more recruitment in the interior,
such as non-union personnel in Fairbanks. He said, in 1995, APC
averaged about 1,800 employees and maintained the 75 percent Alaska
hire rate. He said there are some skilled workers, such as
electricians and pipe welders, which are more difficult to retain
in this state. He said APC would be interested in developing
training opportunities in this state or developing opportunities
for people with those types of skills to relocate to this state.
Number 1049
REPRESENTATIVE DAVIES asked if the hiring of non-union people was
because there were already avenues to hire union people or whether
APC did not want to hire union people.
Number 1062
MR. CHEEK said APC's sister company, Houston Contracting Company
Alaska Limited (HCC), is a union contractor and they employee
everyone that can provided out of Fairbanks local. He said APC,
being non-union, does not recruit union personnel out of Fairbanks.
Number 1081
REPRESENTATIVE RAMONA BARNES asked what the ratio of Natives to
Non-Natives is since APC is a wholly owned subsidiary of the North
Slope Borough.
Number 1093
MR. CHEEK said, last year, APC employed an average of 110 North
Slope Borough resident Natives with a peak of 135 employees which
is a little under 10 percent of the total number of employees. He
said APC is working closely with the Arctic Sivunmum Ilisagvik
College in Barrow for vocational technical training programs to
increase the skill levels of the shareholders in Barrow. He said,
being owned by Arctic Slope Regional Corporation, APC is monitored
very closely in terms of Native hire from the North Slope Borough.
He said when skilled local Natives are not available, other skilled
Alaskan Natives are hired and then lastly skilled Alaskans.
REPRESENTATIVE BARNES asked the overall ratio of Native to Non-
Natives employees.
MR. CHEEK said he did not have that overall ratio with him and said
he could send it.
Number 1130
REPRESENTATIVE BARNES said she was troubled by the fact that APC
does not hire union personnel and then asked him about his comment
there was a lack of trained electrical workers. She said she did
not believe that there was this lack as there is a school operated
by the International Brotherhood of Electrical Workers (IBEW). She
said there needs to be a way to utilize people trained in Alaska in
the field of electrical work.
REPRESENTATIVE BARNES asked if APC was utilizing skilled workers
from the Kotzebue Technical Center.
Number 1187
MR. CHEEK said he was not familiar with the Kotzebue Technical
Center.
Number 1193
CO-CHAIR GREEN referred to the technical school in Seward and asked
if there was a shortage of vocational technical training which
would prevent APC from moving the employment rate up to 85 percent
Alaska hire.
Number 1208
MR. CHEEK said a subcommittee was formed from the Alaska Hire
Group, comprised of the 20 contractors, which visited several
training facilities. He said this group evaluated each training
center to determine the availability of the skills, what is working
and not working, in order to develop an action plan on training in
Alaska.
Number 1234
REPRESENTATIVE BARNES asked how the working group was chosen.
Number 1245
MR. CHEEK said, a few months ago, BP and ARCO sponsored a workshop
for Alaska contractors on how to improve Alaska hire. He said
volunteers were taken from these workshops to form committees which
would present the plan, complete with action items, to the Governor
and to the state. He said this group is comprised of union, non-
union and oil company personnel.
Number 1296
REPRESENTATIVE BARNES asked, in that group, how many are Non-Native
owned companies.
Number 1302
MR. CHEEK said he did not know, but would provide a list of the
companies.
REPRESENTATIVE BARNES said she would also like to know the
ownership of those companies.
Number 1310
RANDY RUEDRICH, General Manager, Doyon Drilling, Incorporated, was
next to testify. He said he is president of the Alaska Chapter of
the Independent Association of Drilling Contractors and had been
chairman of the Alaska Section of the Society of Petroleum
Engineers. He said Doyon has grown from one oil rig to five oil
rigs on the North Slope. He said 88 percent of Doyon employees
live in Alaska and 41 percent of them are Alaska Natives. He said
an internal training program has occurred consisting of 13 classes.
He said the people who graduated from those classes have been
offered jobs by Doyon. He said a few of those graduates have gone
on to work for produces, in other service companies, on the North
Slope, but the vast majority have stayed with Doyon. He said six
employees are drillers on Doyon rigs, responsible for the crew for
12 hours per day on an approximate $15 million to $25 million
asset. He said he sees this as an issue of Alaskan long term
employment rather than an issue of Alaska hire.
MR. RUEDRICH said this scenario can only continue if there is work
and said Northstar provides the drilling industry and the service
industry several years worth of work for a single rig. He said
this, in combination with existing work such as new well drilling,
side tracks and work overs, will provide for a long term stable
employment which will benefit employees and shareholders who are
Alaskans.
MR. RUEDRICH said a rig generates a payroll of about $4 million in
direct labor of approximately 50 people with another 50 jobs to
keep a rig operating. He said the drilling business is a large
industry and done at a cost between 20 percent and 40 percent of
the total project budget.
Number 1510
MR. RUEDRICH said the majority of the employees of Doyon live in
interior Alaska. He said Doyon is a for profit enterprise and the
profits go to Doyon Unlimited which has a history of paying half of
its annual profits to the shareholders, so that money is also going
to interior Alaska.
Number 1552
MR. RUEDRICH said Doyon Universal provides jobs, direct payroll
income, and dividends to Alaska and to the people of the interior.
He said Alaska's drilling operators and related service providers
fully support the continuing orderly development of the North
Slope, including projects such as Northstar. He said it is good
business for the drilling industry and for many individuals in
Anchorage and the interior.
Number 1586
REPRESENTATIVE DAVIES said he understood that the aspects regarding
the drilling contracts were not determined and asked if Doyon was
hoping to receive those contracts.
Number 1611
MR. RUEDRICH said there are a limited number of rigs on the North
Slope and any type of work is good for the industry.
Number 1623
REPRESENTATIVE BARNES asked if Doyon was the only drilling company
with rigs presently on the North Slope.
Number 1633
MR. RUEDRICH said there are five contracting companies on the North
Slope today. These contractors include Doyon and Nabors. He said
the membership of the International Association of Drilling
Contractors (IADC) has decreased.
REPRESENTATIVE BARNES asked if the contractors were presently
drilling anywhere.
Number 1654
MR. RUEDRICH said Doyon has five rigs on the North Slope, three of
which are presently active. Nabors Drilling has six rigs that are
active on the North Slope, Parker Drilling has a rig active on the
North Slope, Rubicon Drilling does not have any rigs presently
active on the North Slope and Nordic Calista Services Number 1 has
one rig running on the North Slope today.
Number 1715
DAVID GINNETT, President, Quality Fabrication, Incorporated (QFI),
was next to testify. He passed around a handout titled, "Steel
Fabrication in Alaska." He said QFI is a steel fabricator which
builds structural frameworks for commercial buildings to oil field
modules. He said, over the past several years, QFI has done
signature projects including the structural framework for the
Alyeska Prince Hotel, the Bradley Lake Power Plant as well as many
of the frameworks for truckable modules used on the North Slope.
He said the work for the North Slope also includes the construction
of above ground pipeline support members, pipe saddles, various
types of platforms and a multiple of structural components which
are required.
Number 1817
MR. GINNETT said QFI was started 13 years ago at a point in time
where there was a downturn in the state's economy. He said the
company where he had previously worked, a steel fabricator in the
state, had closed. He said, at that time, several other steel
fabricators had gone into insolvency and closed. He said the QFI
concept was to tap some of the fabricating market, which at the
time was a $30 million to $70 million per year market. He said it
was felt that fabricating work should be done in Alaska. He said
in 1983 there were two people employed and currently there is
almost 100 Alaskan employees.
Number 1941
MR. GINNETT said the market which the business is built on is a
highly competitive market which competes against companies from the
Lower 48 states. He said, his vision for the future, is to see
construction work begin again on the North Slope on a smaller
scale, as compared to the Prudhoe Bay work. He said QFI began to
do this when they did a majority of the work on the Niakuk project,
the Milne Point, the large scale enhanced oil recovery project for
ARCO and are currently completing the BP Cascade development.
Number 2030
MR. GINNETT said the potential in enhanced oil recovery or marginal
field projects is great as they have components which have been
labeled as a "new era of design." He said this is an era of
building industry in Alaska which previously did not exist. He
said these are smaller scale projects which are funded to the level
of $50 million to $400 million. He said a significant amount of
that development cost can and will be spent in Alaska.
Number 2126
MR. GINNETT said, in a busy year, QFI does $10 million worth of
work. He found QFI does work with 269 Alaskan companies throughout
Alaska. He said small businesses have benefits from smaller field
development. He said over the past few years the work force has
increased, skills have improved, as well as improvements to the
facility and the machinery.
Number 2204
MR. GINNETT said the Northstar project is critical to this momentum
and without it the same economic situation would happen as occurred
in 1981 with the decreased stability in business. He said the
current projects are technically related projects and take
advantage of the program and skills available in Alaska. He said
working closely with the producers and developers in the state is
helpful. He concluded that QFI, from a small business standpoint,
supports the Northstar project and sees it as an important step to
maintaining momentum.
Number 2309
REPRESENTATIVE DAVIES asked what the mix of skills the employees of
QFI have and asked what considerations QFI had in terms of finding
trained personnel.
Number 2344
MR. GINNETT said QFI has some internal training programs. He said
the skill level runs from general laborer to certified and
journeyman type of welders, painting personnel, blasting cleaning
personnel, the fitters which read the blue print to construct the
components, project management personnel, purchasing personnel,
accounting, and quality control, safety and monitoring personnel.
He said QFI will look for personnel in any agency in Alaska from
the vocational technical school in Seward, the Testing Institute of
Alaska and the labor departments.
Number 2455
JAMES UDELHOVEN, President and Chairman of the Board, Udelhoven
Oilfield Systems Services, Incorporated, Alliance Board Member,
Arctic Power Board Member, Washington Institute for Public Policy
Board Member, Board of Regent Member for Charter College, was next
to testify.
TAPE 96-53, SIDE A
Number 0000
MR. UDELHOVEN said his company has put together a federally
approved apprenticeship program for the plumbing and the electrical
trade. He said his company works closely with the apprenticeship
program which is occurring in the Kenai School District. He said
his company works in the area of skilled trades. In the oil
industry the company provides inspection and does start up services
for the large facilities before they go into production. He said
other work has been done in other industries such as Trident
Fisheries.
Number 0241
MR. UDELHOVEN said the Northstar project will change the curve of
the decline. He said if we continue to do business with the oil
companies, as the state did in the 1980s, the state will drive the
oil industry away. He referred to the time line, cost factors
presented by BP and said BP is taking a substantial risk as the
cost is never determined until the project is completed. He said
there are many factors in a project such as material and labor
cost, delays caused by environment, weather and scheduling. He
urged the committee to consider HB 548 in terms of the future
rather on than the details of the bill.
Number 0368
SMOKEY NORTON, Equipment Manager, Peak Oilfield Service, was next
to testify. He said his company believes that Northstar is a good
deal. He said his company employs many truck drivers, mechanics
and said HB 548 is a jobs issue. He said HB 548 is a deal that is
good enough.
Number 0469
REPRESENTATIVE BARNES asked if Peak Oilfield Service was a totally
owned subsidiary of CIRI.
MR. NORTON said the ownership of Peak is 50 percent CIRI and 50
percent by Nabors Drilling.
Number 0534
TOM REDMOND, Human Resources Manager, Camco Products and Services,
was next to testify. He said Camco provides wire line and coiled
tubing services in Prudhoe Bay for BP as well as other oilfield
products. He said Camco employs about 140 people, 86 percent of
which are Alaskan residents who live in the Anchorage, Eagle River,
Palmer and Wasilla area.
Number 0621
MR. REDMOND said businesses are trying to deal with the health,
safety and the environment and maintaining jobs. He said
encouraging these peripheral wells, such as Northstar, is to the
benefit of everyone.
Number 0675
REPRESENTATIVE BARNES asked if outsourcing has affected his
company.
MR. REDMOND said it had not affected his company yet.
Number 0697
JED WHITTAKER said he was representing himself and others, whom he
did not specify. He said profitability was not mentioned, but said
the existing net profit sharing agreement in the lease provides a
profitable development for BP. He said because that lease is
profitable, it is inappropriate to change the rules of the game.
He said the oil companies have spent a lot of time telling the
state they should not change the rules of the game. Mr. Whittaker
said HB 548 is changing the rules of the game.
Number 0813
MR. WHITTAKER said the oil companies tell everyone what they want
to hear. In Fairbanks the oil companies talk about local hire, but
said Alaska hire provisions are unconstitutional. He said the
public is not getting the whole picture, there have been some
omissions. He said integrity dictates that a deal is a deal and
when BP bought that lease from Amerada Hess they knew the deal.
Number 0872
MR. WHITTAKER said he strongly objected to bringing this type of
special interest legislation half way through the session and doing
a rush job on it. He said HB 548 may be unconstitutional because
of that special interest and said there are ethical considerations
regarding the speed of the legislation.
Number 0947
MR. WHITTAKER said the price of oil is going to go up as the demand
increases. He said it is important to get the maximum benefit for
the welfare of the people for the natural resources as is stated in
the constitution. He said he was a litigant in the last Supreme
Court case, which opened up the Alaska primary, and said his faith
was renewed in the Alaska court system. He said, if the
Legislature or the Governor will not uphold the constitution, he
would consider taking this matter to court on the constitutional
issue.
Number 0979
MR. WHITTAKER said he is opposed to HB 548 and told the committee
that they took an oath to uphold the constitution and reject this
inside deal.
Number 0994
REPRESENTATIVE LONG said under the lease agreement, signed by
Amerada Hess, it states that the lease or any undivided interest
may be approved by the state be a signed sublet or otherwise
transfer of the entire lease area. He said this is all HB 548 is
trying to do, asking the state to approve the assignment of this
lease.
Number 1021
MR. WHITTAKER said this would be true if it was an agreement on the
existing lease, but BP is asking for modifications of that lease
including a reduction in the amount of money that the state of
Alaska will get. He corrected a statement that Mr. Morgan had made
in the Senate Resources Committee and said it should be 93 percent
net profit sharing, not 89 percent.
CO-CHAIR GREEN said the 89 percent figure was an based on an
average.
Number 1048
REPRESENTATIVE DAVIES asked him to define the constitutional issue
that he was referring to.
Number 1057
MR. WHITTAKER said there are two issues that he was aware of and
there may be others. The first being special interest legislation
and the second is that the state of Alaska shall get maximum
benefit for the welfare of the people from the natural resources.
Number 1096
REPRESENTATIVE DAVIES said those are two important issues and that
the committee will consider those concerns.
Number 1108
MR. WHITTAKER said the committee should also consider the
litigation of this issue and that development would not occur
before the year 2002, given our court system.
Number 1120
REPRESENTATIVE BARNES said she has always upheld her constitutional
oath of office. She said the correct reading of the constitution
is, "the legislature has the right to control every resource
belonging to the state be it land, water, fish, game, whatever and
we also have the right to vote on contracts, it has happened time
and time again."
Number 1216
CHUCK SULLIVAN, General Manager, Parker Drilling, but said he was
representing the Alliance. He referred to a letter from the
Alliance dated April 8, 1996, and read it into the record, "Dear
Representative Green, The Alaska Support Industry Alliance would
like to convey their support of the recently negotiated agreement
with BP Exploration (Alaska) regarding the Northstar oil field in
the Beaufort Sea.
"The development of the North Slope oil field will create 500
construction jobs and more than $4000 million in revenue into the
state treasure along with extending the life of the Trans-Alaska
Pipeline System.
"An Important part of this development is the expansion of oil
fields module assembly operations in Alaska. BP has agreed to hire
Alaskans, to fabricate facilities such as modules in Alaska and
work to develop a new industry in Alaska, the manufacture of sea
lift modules.
"Once Northstar is brought into production, and its pipeline is
delivering oil to the Trans-Alaska Pipeline System, other known oil
fields and prospects in the area will become more attractive. With
the expansion of Infrastructure, it is possible that the
development of Northstar will lead to other development
opportunities.
"With the 19th legislative session rapidly coming to a close, it is
important that lawmakers take appropriate steps to consider and
vote on the Northstar proposal.
"A positive vote on the Northstar proposal is strongly encouraged
by the members of the Alaska Support Industry Alliance.
Sincerely, Keith D. Burke"
Number 1336
MR. SULLIVAN said HB 548 is a nice piece of business and said the
alliance thinks this is good for Alaska and for Alaska business.
He said BP has left the deal open for scrutiny.
Number 1405
DAVE HAUGEN, Vice-President, Lynden, Incorporated, was next to
testify. He read a letter written by the chief executive officer
of Lynden, Jim Jansen, dated April 5, 1996, into the record,
"Lynden Incorporated and its operating companies are firmly
committed to BP's efforts to develop the Northstar project. With
the potential recovery of 130 million barrels of oil, the Northstar
project has a potential of being very beneficial for the state of
Alaska and its citizens.
The Northstar development will provide many positive benefits for
Alaskans and Alaskan companies. The project capital spending
estimate is over $250 million, most of which will be spent in
Alaska. BP is also committing to launching a new Alaskan industry,
fabrication and assembling of large oil field modules in-state.
The oil and gas industry has always been an important part of
Lynden's business going back to the days of the development of the
Swanson River field on the Kenai Peninsula. Lynden Transport,
Lynden Air Freight, Alaska West Express/Frontier Transportation,
Bering Marine and Lynden Logistics are just some of the Lynden
companies that have been and continue to be directly involved in
the oil and gas industry.
Please consider Lynden to be unequivocally in support of BP's
efforts to develop the Northstar project."
MR. HAUGEN said he would be available to answer any questions.
Number 1497
BILL ALLEN, Chairman and Chairman of the Board, VECO Corporation,
was next to testify. He said VECO was started in 1969 and is one
of the largest service companies doing engineering, construction,
and maintenance. He said he supports Northstar and said the
development was attempted in 1984. He said BP is committed to
building the sea lift modules if the facilities can be provided and
a new industry will be created in Alaska which can possibly lead to
an international industry.
Number 1609
MR. ALLEN said the truckable modules have been produced in Alaska
and said VECO was the first to compete with the Lower 48 states.
He said Northstar will help keep oil coming down the pipeline. He
said the longer the pipeline can be kept, the better it will be for
the state. He concluded that he is in support of Northstar.
Number 1702
REPRESENTATIVE BARNES asked how many VECO employees there were.
MR. ALLEN said there were about 3,000.
Number 1709
REPRESENTATIVE BARNES asked if VECO was still the largest
contractor in the state.
Number 1712
MR. ALLEN said Arctic Slope is probably bigger than VECO as far as
work in Alaska.
REPRESENTATIVE BARNES said VECO was the largest, wholly owned
industry in Alaska and the only international company. She said
they should be commended for the work they have provided to the
state.
Number 1754
CO-CHAIR GREEN thanked everyone for testifying. He said if the
state can get going on Northstar, Alaska will become a staging area
of Asia. He said there is a bright future for oil, fabrication,
labor forces, engineering which is the whole gamut in the Asian
market.
ADJOURNMENT
There being no further business to come before the House Standing
Committee on Resources, the meeting was adjourned at 10:12 a.m.
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