Legislature(1997 - 1998)
02/24/1997 03:44 PM House RES
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
JOINT SENATE/HOUSE RESOURCES STANDING COMMITTEE
February 24, 1997
3:44 p.m.
SENATE MEMBERS PRESENT
Senator Rick Halford, Chairman
Senator Lyda Green, Vice Chair
Senator Loren Leman
Senator Bert Sharp
Senator Robin Taylor
Senator Georgianna Lincoln
SENATE MEMBERS ABSENT
Senator John Torgerson
HOUSE MEMBERS PRESENT
Representative Scott Ogan, Co-Chairman
Representative Bill Hudson, Co-Chairman
Representative Ramona Barnes
Representative Irene Nicholia
Representative Fred Dyson
Representative William K. ("Bill") Williams
Representative Reggie Joule
HOUSE MEMBERS ABSENT
Representative Beverly Masek
Representative Joe Green
COMMITTEE CALENDAR
Oil Industry Progress Report
- George From, Manager - Materials, Purchasing &
Contracts, ARCO Alaska
- Eric Luttrell, Vice President, BP Exploration (Alaska)
Incorporated
- Dwight Perkins, Special Assistant, Office of the
Commissioner, Department of Labor
- Chris Miller, Research and Analysis, Division of
Administrative Services, Department of Labor
ACTION NARRATIVE
SENATE TAPE 97-13, SIDE A
Number 0001
CHAIRMAN RICK HALFORD called the Joint Senate/House Resources
Standing Committee meeting to order at 3:44 p.m. He said the
committee would receive a progress report on legislation passed
last session with regard to Northstar and Badami, as well as
general comments about where we are on local hire and construction.
GEORGE FROM, Manager - Materials, Purchasing and Contracts, ARCO
Alaska, said along with partners Anadarko and Union Texas
Petroleum, they discovered the Alpine Field in 1994. After two
years of delineation drilling and seismic study, they announced a
commercial discovery late last year. He said it is a brand new
reservoir for Prudhoe Bay, not just an extension of Kuparuk or
Prudhoe.
MR. FROM read the Alpine Development Overview to the committee. He
added that the Alpine Field has slightly less volume than the Point
MacIntyre Field that they discovered in 1988. It contained proven
and potential reserves of 250-300 million barrels in a 60,000-
square-mile reservoir. The oil in Alpine Reservoir is a high
quality, high gravity crude, higher in quality than either Prudhoe
or Kuparuk Fields. Peak production is estimated at 60,000 barrels
per day. Development of this project is estimated at $700 - $800
million, 30 percent less than traditional Northstar costs.
MR. FROM outlined the project scope for the committee, referencing
his handout. He said the footprint for Alpine will be
approximately 85 acres, less than 0.2 percent of the 40,000-acre
field. They will accomplish this by limiting the number of wells
and by using long-reach horizontal drilling technology. He noted
one unique feature of their development is a horizontally drilled
river crossing under the main channel of the Colville River.
MR. FROM presented the committee with a graph of the major cost
categories and their development schedule. They plan to complete
construction in three winter seasons.
Number 0200
MR. FROM stated some of their major challenges are to minimize the
environmental and cultural impacts on the village of Nuiqsut and
protect the Colville River Delta. He said they had minimized the
size of the development, eliminated the road, and are doing
construction only in the winter season. They are currently limited
to a single load limit of 350 tons to cross an ice bridge on the
Colville River. He said they are working with the natives of
Nuiqsut to lessen impact on them. They are offering the village
gas or electricity, jobs and matching scholarship funds.
MR. FROM reviewed the permit status and said they had started this
process in June 1995. He said their intent is to maximize the
Alaskan content through capacity, capability and competitiveness.
He listed their alliance companies: ASRC/Parsons Engineering Ltd.,
Alaska Petroleum Contractors, Houston Contracting Company, Nuiqsut
Constructors, Michael Baker, and Tri-Ocean Engineering Ltd.
CHAIRMAN HALFORD asked whether Michael Baker and Tri-Ocean were
outside companies.
MR. FROM answered yes, but he thought Michael Baker had been here
for some time.
Number 0270
REPRESENTATIVE RAMONA BARNES asked whether ASRC/Parsons Engineering
Ltd. was also an outside company joint venturing with ASRC; whether
Michael Baker has an office in Alaska with a business license; and
whether Tri-Ocean Engineering was in Canada.
MR. FROM answered yes to all three. He said their purchasing
strategy is to build the Alpine project in Alaska. Throughout the
project, they will use competitive Alaskan suppliers and
fabricators where they can. He said Alaskan suppliers will compete
for project orders, and bids will be evaluated on life-cycle cost
basis that will include service, quality and the willingness to
meet their project goals as well as costs.
MR. FROM said they would utilize their current ARCO Alaska supplier
agreements both for identifying candidates for major project orders
and for orders not large enough to require a formal bidding
process. They currently have 28 master agreements with Alaskan
suppliers, and they have done business with 500 Alaskan suppliers
within the last year. Most of the major processing and mechanical
equipment will be purchased directly from manufacturers.
MR. FROM said Ken Thompson's slogan, "No decline after '99," is now
their plan. He said it brings two new oil companies to Alaska -
Anadarko and Union Texas Petroleum. He said the Alpine development
will bring to Alaska 850 construction jobs, approximately 50 full-
time jobs, approximately 50 drilling jobs for the first five years,
and $1 billion in state and local revenues.
REPRESENTATIVE BARNES asked Mr. From how long he has been in
Alaska.
MR. FROM answered that he has been here this time since 1988.
CHAIRMAN HALFORD asked what royalty rate the Native lands received,
to compare private sector with state royalties.
MR. FROM said he didn't know.
REPRESENTATIVE BARNES said she was very interested in the answer
also.
SENATOR LINCOLN asked whether it was going to be an easy task to
get the modules to where they are going.
MR. FROM answered that it is relatively easy. They have built
modules up to 5,000 tons, and this whole project has a total of
7,000 tons of modules. He said the modules are in the conceptual
stage right now.
Number 0364
SENATOR LINCOLN asked why he added "where possible" to mitigating
the impacts on Nuiqsut.
MR. FROM explained that they are building on gravel in places along
the Colville River, and that is "where possible" because they will
be in the subsistence hunting area. He said they are working with
the village on this issue.
SENATOR LINCOLN asked whether the Alaska suppliers were going to
compete amongst themselves for orders or with outside sources.
MR. FROM replied it just depends on the type of commodities they
are looking for. He said where the Alaskan companies are
competitive in price, service, and the ability to supply the goods,
they will utilize them to the maximum extent possible.
REPRESENTATIVE BILL HUDSON asked whether it was his intention to
build the modules in Alaska.
MR. FROM answered that was his intention, although they hadn't
selected a site yet.
CHAIRMAN HALFORD asked Mr. From to provide the committee a
breakdown of the approximate $1 billion in state and local revenues
in terms of what sources that comes through.
SENATOR BERT SHARP asked him to provide a map of the private and
state ownership pattern within the area to be explored.
REPRESENTATIVE BARNES asked: Since we know Alpine is next to the
National Petroleum Reserve, and since the State of Alaska gets none
of the funds - the 50 percent goes to the Native villages - how is
the gas to come from the National Petroleum Reserve and run through
the line they build for Alpine?
MR. FROM said he would get that information.
REPRESENTATIVE BARNES asked what interface he had with the new
module building industry in the Port of Anchorage, relating
specifically to Northstar. She wanted to know specifically what
ARCO was doing to make that a reality.
MR. FROM replied that they had toured the Port of Anchorage and
looked at the facilities, and now the project team is looking at
other facilities around Alaska. They will be built in Alaska, but
not necessarily at the Port of Anchorage.
Number 439
ERIC LUTTRELL, Vice President, BP Exploration (Alaska)
Incorporated, said this report is pre-lawsuit; he presented the
committee with a location map and a schematic overview of the
Northstar project. He said they still have a small working partner
with Murphy Oil and Gas. Last year they thought the reserves were
going to be 130 million barrels and that the costs were going to be
about $350 million; so both the reserves and costs have
subsequently gone up.
MR. LUTTRELL said one of their statutory requirements was to
sanction Northstar by May of 1997; they acquired funding in October
1996 and expect first oil to come mid-1999. The second requirement
was to report quarterly on Alaskan residencies and hiring
statistics, which they sent to the Department of Labor recently.
He said the supplement royalty at the current price would be 26.41
percent, more than twice the average royalty on the North Slope.
MR. LUTTRELL said they made the commitment to try and build
Northstar in Alaska to the degree they thought it possible and help
create a new fabrication industry. He said they are using VECO and
APC in Anchorage to build fabrications. As a result of all the
commitments, he estimated they would spend $225 million in Alaska.
He reviewed a pie graph of the Alaskan content of the project.
CHAIRMAN HALFORD asked what vessel fabrication is.
MR. LUTTRELL replied that in order to separate oil and gas, you
need to build very large vessels that are big tanks with valves and
other things attached to them. It is very specialized, and no one
ever expected it to be done in Alaska.
REPRESENTATIVE BARNES asked him why big tanks could not be built in
Alaska.
MR. LUTTRELL said very specialized equipment was needed to roll the
steel in a big circle.
REPRESENTATIVE BARNES said it seemed to her that if we can build
modules, we could buy material in big strips and fabricate them in
Alaska.
MR. LUTTRELL said the Alaskan content will not change relative to
the lawsuit; he reviewed the current status with the committee,
saying they deferred fabrication on 2/13/97. The consequence is
that they will delay the sea-lift, which they intend to do in the
summer of 1998-1999.
REPRESENTATIVE BARNES asked for the status of Duck Island.
MR. LUTTRELL replied that the Endicott Field is in the Duck Island
unit. In most cases, the field and the unit have the same name.
CHAIRMAN HALFORD asked whether there is anything they could do in
terms of timing or anything else to encourage the Northstar
development to get back on track.
MR. LUTTRELL said he has been advised to let the courts take their
normal course.
CHAIRMAN HALFORD asked: If the state is successful at the superior
court level and it is appealed, would they wait for the appeal to
be decided before there is action?
MR. LUTTRELL said they will make decisions as they go along.
SENATE TAPE 97-13, SIDE B
Number 0006
MR. LUTTRELL answered a question from Representative Hudson, saying
they had deferred their position in line for things like
compressors and turbines.
REPRESENTATIVE HUDSON asked whether the compressors and things of
that nature were available in the U.S. or overseas.
MR. LUTTRELL said he didn't know, but he thought most of it was in
the U.S.
REPRESENTATIVE BARNES asked whether the technology they are trying
to develop at the Port of Anchorage would be picked up at the point
that Northstar comes back on line.
MR. LUTTRELL said they have a lease and will scale back up when
they are in the position to go forward. He said BP is going
forward on Badami. The long-lead items have been ordered, they
have the permits, and they are moving gravel on the Slope as he
speaks. Drilling should start on Badami in September. He wanted
to make it clear that they will not seek royalty relief for this
project. He said they are working very closely with their partner,
FINA. He reviewed a pie chart of the Alaskan content of Badami.
CHAIRMAN HALFORD said he noticed the fabrication is in the non-
Alaskan block.
MR. LUTTRELL explained that the fabrication is actually in two
parts, with equal parts in Alaska and Canada. He said they are
spending a total of $14 million in Canada.
REPRESENTATIVE FRED DYSON asked where in Canada the fabrication
would take place.
MR. LUTTRELL responded that it would be built in Calgary and move
up the river for some additional work around the Hay River, and the
rest will come down the MacKenzie.
Number 0490
SENATOR LINCOLN asked whether Alaska hire statistics had gone up
from 1995 for BP. She said she wanted to hear more about what
their goals were in this area, for example, working with
contractors and vocational schools.
MR. LUTTRELL said he would get those details for her.
CHAIRMAN HALFORD said he wanted to know from the Department of
Labor what is an acceptable percentage.
SENATOR SHARP asked for more information about their partner.
MR. LUTTRELL said FINA is a Belgian Company that has extensive
Lower 48 production and has had leases in Alaska for 10 or 12
years. It was a partner with CONOCO on the original Badami
discovery, and they are very excited about working with them.
SENATOR LOREN LEMAN asked whether the engineering portion being
done in Canada was primarily associated with the fabrication being
done there or whether there was some other unique capability in
Canada in addition to that.
MR. LUTTRELL replied they selected Colt Engineering when they first
put Badami together because they had the greatest amount of Arctic
experience.
SENATOR LEMAN asked whether they were working with any Alaskan
engineering companies too.
MR. LUTTRELL answered that he understood they are trying to put
together a joint venture with an Alaskan firm, but it's not part of
what they are doing with Badami.
REPRESENTATIVE BARNES asked whether it was true when that firm was
selected, with all their expert Arctic experience, they proposed
drilling an underwater line that didn't work and now have to go
over-ground.
MR. LUTTRELL responded that the original conceptual work identified
the possibility of burying a line, but as they worked on it in more
detail with all the firms, they concluded that was probably not the
best or cheapest way; they now have an above-ground line.
DWIGHT PERKINS, Special Assistant, Office of the Commissioner,
Department of Labor, read information on industry Alaska hire
statistics in a letter from Commissioner Cashen to the committee.
CHAIRMAN HALFORD asked for an explanation of the sources of a
statement in the letter.
CHRIS MILLER, Research and Analysis, Division of Administrative
Services, Department of Labor, replied that they used the total
wages, from clerk to president, reported by those firms for all
employees to come up with a standard statistical mean. The
$100,000 is the oil majors and the $50,000 figure is everyone in
the oil industry.
MR. PERKINS continued reading the letter.
REPRESENTATIVE BARNES asked for a copy of all the work documents
this working group has, including studies, notes on studies, and
anything related to the question of his report. In addition, she
wanted to know if there are qualified oil field engineers in
Alaska.
MR. PERKINS said he couldn't say, but Mr. Miller tracks that
research and could get a round number.
REPRESENTATIVE BARNES said she always hears about engineering work
for new projects on the North Slope going out-of-state and out-of-
country, as well. She said the question "why" needs to be
answered. She said she believed we have qualified engineers in
Alaska.
SENATOR ROBIN TAYLOR asked which operations were owned by Alaskan
corporations.
MR. PERKINS said he didn't know.
MR. MILLER said the ownership is on the tax file from which they
extracted information for their research.
SENATOR TAYLOR said he was shocked that some companies that
advocated very strongly for Alaskan hire have some of the highest
numbers for nonresident employees. He asked whether there wasn't
some sort of number the Department of Labor was aiming for in
Alaska hire.
MR. PERKINS replied that he thought we had seen the peak of
nonresident hire, and there has been a lack of new-hire jobs.
CHAIRMAN HALFORD said he thought there should be some public policy
regarding a goal for a number for Alaska hire.
REPRESENTATIVE REGGIE JOULE said his experience is that companies
keep the same employees from contract to contract for job security.
SENATOR LINCOLN noted that all the companies weren't on the list.
MR. PERKINS said they just took a sampling of the top 20. He
thought it would be important for the legislature to have a
benchmark.
SENATOR LINCOLN asked how we are encouraging nonresidents to become
residents.
MR. MILLER responded that in permanent fund information they have
looked at, 14 percent of the folks they have determined to be
nonresidents in one given year have turned up being residents the
next time they look.
SENATOR LINCOLN asked for their definition of an Alaskan resident.
She also asked how much material Representative Barnes had asked
for.
MR. PERKINS said he hadn't attended those meetings, but he would
get together with Mr. Andrews and find out.
SENATOR LEMAN noted that page 3 mentions a pilot project to measure
Alaskan hire and asked if that was done in response to HB 548
reporting to the legislature.
MR. MILLER replied that the pilot project was a way to speed
reporting in an electronic format using the Unemployment Insurance
(UI) data reporting process.
CHAIRMAN HALFORD said he thought the Department of Labor should set
a standard for Alaska hire and in the process tell them what is the
correlation between companies, between union and non-union, et
cetera.
REPRESENTATIVE BARNES asked him to include a definition of what an
Alaskan business is, and she hoped it meant something other than
you have to have a business license hanging on the wall.
REPRESENTATIVE IRENE NICHOLIA asked whether industry personnel
claiming residency could have the destinations for their two-week
breaks documented and made available as public information.
CHAIRMAN HALFORD said he assumed if the permanent fund dividend
eligibility is really enforced, that would probably catch it. He
told Mr. Perkins he wanted a definition and a base-line on Alaska
hire from the Department of Labor.
MR. PERKINS responded affirmatively.
SENATOR SHARP said he was still concerned that of all the
contractors identified in the Alpine BP project, they have the
worst record of Alaska hire, and he hoped that had changed in the
last year.
CHAIRMAN HALFORD said they await their responses and adjourned the
meeting at 5:15 p.m.
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