Legislature(2017 - 2018)BARNES 124
01/20/2017 01:00 PM House RESOURCES
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| Overview: Department of Natural Resources | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
January 20, 2017
1:00 p.m.
MEMBERS PRESENT
Representative Andy Josephson, Co-Chair
Representative Geran Tarr, Co-Chair
Representative Dean Westlake, Vice Chair
Representative Harriet Drummond
Representative Justin Parish
Representative Chris Birch
Representative DeLena Johnson
Representative George Rauscher
Representative David Talerico
MEMBERS ABSENT
Representative Chris Tuck (alternate)
COMMITTEE CALENDAR
OVERVIEW: DEPARTMENT OF NATURAL RESOURCES
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
JOHN MORRISON, Executive Director
Mental Health Trust Land Office
Office of the Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Provided an overview of the Mental Health
Trust Land Office, and answered questions during the PowerPoint
presentation entitled, "Department of Natural Resources Overview
for House Resources Committee January 18, 2017."
ANDREW MACK, Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Introduced staff, provided additional
information, and answered questions during the PowerPoint
presentation entitled, "Department of Natural Resources Overview
for House Resources Committee January 18, 2017."
MARK WIGGIN, Deputy Commissioner
Office of the Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Provided background information on
divisions within the Department of Natural Resources and
answered questions during the PowerPoint presentation entitled,
"Department of Natural Resources Overview for House Resources
Committee January 18, 2017."
STEVEN MASTERMAND, Director
Central Office
Division of Geological & Geophysical Surveys
Department of Natural Resources
Fairbanks, Alaska
POSITION STATEMENT: Provided information on the Division of
Geological & Geophysical Surveys and answered questions during
the PowerPoint presentation entitled, "Department of Natural
Resources Overview for House Resources Committee January 18,
2017."
ED FOGELS, Deputy Commissioner
Office of the Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Introduced Mr. Goodrum, director of the
Division of Mining, Land and Water, Dr. Longan, Executive
Director of the Office of Project Management & Permitting,
provided additional information, and answered questions during
the PowerPoint presentation entitled, "Department of Natural
Resources Overview for House Resources Committee January 18,
2017."
BRENT GOODRUM, Director
Central Office
Division of Mining, Land and Water
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Provided information on the Division of
Mining, Land and Water, and answered questions during the
PowerPoint presentation entitled, "Department of Natural
Resources Overview for House Resources Committee January 18,
2017."
CHANTAL WALSH, Director
Central Office
Division of Oil and Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Provided information on the Division of Oil
and Gas and answered questions during the PowerPoint
presentation entitled, "Department of Natural Resources Overview
for House Resources Committee January 18, 2017."
SARA LONGAN, Executive Director
Office of Project Management & Permitting
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Provided information on the Office of
Project Management & Permitting and answered questions during
the PowerPoint presentation entitled, "Department of Natural
Resources Overview for House Resources Committee January 18,
2017."
FABIENNE PETER-CONTESSE, Director
Central Office
Division of Support Services
Department of Natural Resources
Juneau, Alaska
POSITION STATEMENT: Provided information on the Division of
Support Services and answered questions during the PowerPoint
presentation entitled, "Department of Natural Resources Overview
for House Resources Committee January 18, 2017."
ACTION NARRATIVE
1:00:12 PM
CO-CHAIR ANDY JOSEPHSON called the House Resources Standing
Committee meeting to order at 1:00 p.m. Representatives
Josephson, Rauscher, Drummond, Birch, Parish, Talerico,
Westlake, and Tarr were present at the call to order.
Representative Johnson arrived as the meeting was in progress.
CO-CHAIR JOSEPHSON made opening remarks.
^OVERVIEW: DEPARTMENT OF NATURAL RESOURCES
OVERVIEW: DEPARTMENT OF NATURAL RESOURCES
1:02:21 PM
CO-CHAIR JOSEPHSON announced that the only order of business
would be a continuation of the overview by the Department of
Natural Resources begun during the meeting of 1/18/17.
1:04:46 PM
JOHN MORRISON, Executive Director, Mental Health Trust Land
Office, Office of the Commissioner, DNR, informed the committee
that the Mental Health Trust ("Trust") has its roots in
territorial days when individuals who were found insane were
shipped to an institution in Oregon "never to be seen again."
He characterized this system as an inadequate level of mental
health care for a territory seeking statehood, thus in 1956, the
first federal land grant of 1 million acres was granted to the
territory of Alaska to be used to generate income and pay for
mental health programs. However, the land base was not used
for the purpose for which it was dedicated, and in 1984 the
Trust was sued and the courts determined that the land was being
given away - designated as parks and for other uses - but was
not generating revenue. In 1994, a settlement reconstituted the
land trust with a new 1 million acre land grant consisting of
about 4,500 parcels located as far north as Livengood, as far
west as Ophir, and as far south as Ketchikan. The new trust is
governed by a seven-member board and two offices: 1.) The
Mental Health Trust Authority, Department of Revenue (DOR),
administers grants and programs for the Trust; 2.) The Mental
Health Trust Land Office (TLO), DNR, manages land and other
assets for the Trust. The tenants of the Trust's mission are:
maximize the long-term revenue from Trust land; protect the
corpus; protect and enhance the long-term productivity of Trust
land; encourage a diversity of revenue-producing uses of Trust
land; manage all Trust land prudently, efficiently, and with
accountability to the Trust and its beneficiaries. Mr. Morrison
stressed that all decisions are made in the best interest of the
Trust and its beneficiaries. The Trust and TLO generate two
types of revenue: 1.) Principal revenue, which is revenue
generated from a divestiture of an interest in Trust land, such
as land and timber sales and royalties; 2.) Income revenue,
which is revenue generated from interest, rent, bonus bids, and
fees. He explained that under the terms of the Trust, the
principal must be reinvested in another income-producing asset,
and the income is available for use by trustees for programs,
administrative costs, and for rebuilding the land base. The
trustees have made a decision to focus on both the generation of
income revenue and a diversification of revenue streams, because
the land and timber sales that have generated a majority of the
Trust's principal are diminishing. The TLO manages the Trust's
land under a resource management strategy, which is a policy
that identifies the highest and best use of parcels, and which
is sometimes difficult to achieve. The resource management
strategy divides the Trust's land base into seven
classifications, one of which is minerals and materials,
including the Fort Knox Mine, the Livengood Gold Project, and
potential mineral exploration at Icy [Cape]. The real estate
asset classification includes the main sources of income
generation, and the land classification relates to the
stewardship of land not otherwise classified, and also to
revenue generation. The forestry asset has waned to almost no
activity. At this time, the largest forestry initiative is a
land exchange with the U.S. Forest Service (USFS), U.S.
Department of Agriculture, for many parcels in Southeast that
would be valuable for timber harvest. Although federal
legislation is needed to facilitate the exchange, the enabling
legislation has been introduced in Congress by the Alaska
congressional delegation, and state legislation is being
proposed.
1:15:33 PM
MR. MORRISON continued to explain the next classification is
programmatic real estate wherein the Trust has assumed
responsibility to participate in the facility needs of
beneficiaries' programs, such as providing infrastructure, seed
capital, and in-house expertise for beneficiaries. Two examples
of infrastructure are the Gateway to Recovery Enhanced
Detoxification Center in Fairbanks and the Asset's Inc.,
facility in Anchorage. Mitigation marketing is a new asset
classification for the Trust, and Mr. Morrison said the Trust is
monitoring the potential for wetlands and carbon credits
mitigation in an effort to protect Trust land while providing
immediate revenue. The last category is energy as the Trust has
coal resources, gas and possible oil reserves in the Kenai Loop
Field, and gas potential in Nenana and Cook Inlet. He pointed
out that TLO and the Trust are self-funded and provide
significant funding to the state through grants for mental
health programs; in fact, during fiscal year 2017 (FY 17), TLO
will have generated over $200 million in revenue from a well-
diversified stream, which protects the Trust from commodity
markets. Mr. Morrison concluded, advising that all the efforts
from the Trust and TLO benefit the Trust beneficiaries.
CO-CHAIR JOSEPHSON stated that an ongoing audit of the Mental
Health Trust is currently examining its operations in great
detail.
1:20:09 PM
REPRESENTATIVE BIRCH recalled there are policies related to
investment practices - perhaps tied to those of the Alaska
Permanent Fund Corporation - and asked whether the Trust uses
investment-qualified personnel from other departments in regard
to real estate investments.
MR. MORRISON responded that the trustees have chosen to
diversify investment by using principal to acquire income-
producing property; this process has been ongoing for the past
14 years.
CO-CHAIR TARR noted that additional information could be
presented to the House Natural Resources Finance Subcommittee on
the Trust's most recent activity.
REPRESENTATIVE BIRCH understood there are concerns about whether
investment decisions follow best practices policy.
CO-CHAIR JOSEPHSON offered to gather questions in writing. He
asked how the Trust would utilize land in the event a proposed
mine was not permitted.
MR. MORRISON acknowledged that a proposed mine may never produce
revenue; other uses for a certain parcel may be wetlands or
carbon credit mitigation, or the land may be returned to the
state. In further response to Co-Chair Josephson, he confirmed
an exchange with the state may be with other DNR land sources.
1:24:26 PM
ANDREW MACK, Commissioner, Department of Natural Resources,
suggested the DNR overview continue to the Division of
Geological & Geophysical Surveys (DGGS), the Division of Mining,
Land & Water (DMLW), the Division of Oil & Gas (DOG), and the
Office of Project Management & Permitting (OPMP).
1:25:50 PM
MARK WIGGIN, Deputy Commissioner, Office of the Commissioner,
Department of Natural Resources, informed the committee the
Division of Geological & Geophysical Surveys is based largely in
Fairbanks and is comprised of geologists, geophysicists, and
scientists with expertise in mineral resources and in geologic
hazards throughout the state. In addition, DGGS staff publishes
written and online geologic data for public access.
1:27:40 PM
STEVEN MASTERMAND, Director, Central Office, DGGS, DNR, directed
attention to slide 11 of the PowerPoint presentation entitled,
"Department of Natural Resources Overview for House Resources
Committee January 18, 2017." He informed the committee DGGS has
been in existence since the formation of the Alaska Territorial
Department of Mines in 1912. The division's mission is to
assess Alaska lands for their capability to produce metals,
minerals, fuels, geothermal resources, sand, gravel, and riprap,
and to also assess geologic hazards such as landslides,
earthquakes, tsunamis, volcanic activity, permafrost, flooding,
erosion, and others. In FY 17, the DGGS operating budget was
$8.5 million, and about one-half of that was unrestricted
general funds (UGF). The division employs 51 positions and meets
its mission by conducting geological investigations around the
state; in regard to metals, oil and gas, and coal, the
geologists primarily focus on the potential of those resources.
The resulting maps, reports, and analyses that are generated
from investigations are published and widely used; furthermore,
DGGS makes available physical materials - such as rock samples
and core samples - to the division's new Geologic Materials
Center (GMC) which was relocated to Anchorage in 2015. Samples
from the facility are widely used by oil, gas, and mineral
industries, and were used to lead to new discoveries on the
North Slope (slide 11). In 2016, the division generated 36.9
million web page views and almost 900,000 publications were
downloaded from the web site, which he characterized as a
"pretty astounding number of publications," and is a substantial
increase from prior years. Almost one-half of the inquiries
were related to oil, gas, coal, and minerals, proving that DGGS
information is being used to develop the state's natural
resources. A key role of the division is geological mapping,
and two grants from the U.S. Geological Survey, U.S. Department
of the Interior, and funding from a capital project allowed for
mapping in Tok River near recent discoveries of copper, lead,
zinc, silver, and gold. The area was largely unknown; however,
DGGS completed a geophysical survey and a mapping project, and
released geochemical information that spurred mining claims
staking activity in the area. In addition, DGGS provided
information previously gathered on the Bonnifield district to
the public, which also led to mining claims staking over 32,000
acres. Mr. Mastermand turned to geologic hazards, noting that
Alaska has 54 active volcanos - three have erupted in the past
year - and DGGS monitors volcanic activity and reports eruptions
to the governor's office, the Division of Homeland Security &
Emergency Management, Department of Military & Veterans'
Affairs, and to airports and aviation organizations. As a
result of the Pavlof eruption in March 2016, 140 flights were
canceled and 6,200 people were prevented from flying through the
volcanic ash. Other seismic activity is expected at any time.
Also published this year were reports on an area of the North
Slope known as the Nanushuk formation, which is found in a
sequence of rocks that have produced recent discoveries. The
DGGS reports documented the petroleum geology characteristics of
a unit of rocks at Wainwright as high quality, suggesting there
is exploration potential between Wainwright and the Colville
River area (slide 12).
1:37:23 PM
CO-CHAIR JOSEPHSON surmised there is oil potential "some
distance west of Barrow."
MR. MASTERMAND said the report indicates that the Nanushuk
formation rocks beneath Wainwright have "some of the right
characteristics." Returning to the topic of geologic hazards,
he related that DGGS, in conjunction with the Alaska Earthquake
Center, University of Alaska Fairbanks, and the National Oceanic
and Atmospheric Administration, U.S. Department of Commerce,
produces and distributes tsunami and inundation reports that
inform coastal communities of potential danger and evacuation
routes.
CO-CHAIR TARR recalled that GMC was initially oversized, and
questioned whether the facility is now at full capacity.
MR. MASTERMAND agreed and explained that the facility was filled
by one-third when the collection was moved, and now the shelves
are 50 percent full. He said he expected the rate of donations
to decline to a level rate; on the other hand, facility use has
increased to 600 visitors this year. Senate Bill 170 [passed in
the 29th Alaska State Legislature] allowed GMC to charge fees
for services in order to become less reliant on UGF, and the
fees are going to public notice shortly.
MR. MASTERMAND closed, noting that recent analyses on Alaska
coal differ from accepted knowledge that coal is a good source
for gas but not for oil; in fact, tests by USGS and DGGS reveal
that Alaska coal samples successfully produced oil in the
laboratory environment, which suggests that there may be more
exploration opportunities for oil around the state.
1:42:52 PM
REPRESENTATIVE PARISH asked for the price point for oil at which
using coal to produce oil becomes economic.
MR. MASTERMAND was unsure. The division envisions that if coal
is heated in the right way and oil migrates out of the coal, oil
would be trapped in conventional types of oil traps, thus the
economics would be similar.
COMMISSIONER MACK, referring to DGGS data on the Nanuschuk
structure, noted that the data is very important to Alaska
because exploration to the west and south of existing fields,
and into the National Petroleum Reserve - Alaska (NPRA), reveal
"stronger trends of ... this particular structure." The
department will utilize this data in its management plan of NPRA
and new development west toward Wainwright.
MR. WIGGIN added that the aforementioned seismic data relates to
GMC [as data and materials are stored there]. The state has
accumulated - through the "capital credit system" - credits that
have supported seismic shoots of approximately 49 data sets
throughout the state. This is a large volume of data, and four
data sets are due for release to the public after being held by
DNR for ten years as is directed by statute. He cautioned that
it is not an easy process to manage large amounts of data sets,
spanning from the east side to the west side of the North Slope,
throughout Cook Inlet, and perhaps some areas of Middle Earth
[areas of the state not on the North Slope or Cook Inlet]. Mr.
Wiggin said the Division of Oil & Gas (DOG) and DGGS staff are
making efforts to prepare and release the data; subsequently, a
fee package will be developed by GMC. He characterized the
seismic data as a tremendous asset for new explorers that will
create advantages for lease sales.
1:49:07 PM
CO-CHAIR JOSEPHSON expressed his understanding that there is a
tension in that the state seeks to release the data to encourage
development; however, the state has made an investment to obtain
the data and has a proprietary interest. Further, he questioned
whether DNR is legally required to release the data.
MR. WIGGIN agreed that the state has made an investment in data
that is of value to the public, to explorers, and to investors.
The question is how to release the data to stimulate desired oil
production and not only exploration; DNR is striving to ensure
that the fees charged for the data cover the state's costs of
hardware and personnel. The value of the data is to stimulate
exploration and production. In further response to Co-Chair
Josephson, he opined DNR is required to release the data.
REPRESENTATIVE PARISH asked for the value of the data.
MR. WIGGINS responded that the state has invested $0.5 billion
to $1 billion in the data. In further response to
Representative Parish, he related that one data set was shot by
a private individual at a cost of approximately $22 million and
the owner sold the data set for $14 million, twice.
REPRESENTATIVE PARISH expressed his concern about the first user
selling the data for less than the state.
MR. WIGGIN acknowledged that the state has no mechanism to
prevent the resale of data after its release. He opined that
DOG and DGGS are not tasked to worry about resales, but to seek
production and increased oil flowing through TAPS. He suggested
timing the release of data before lease sales.
CO-CHAIR JOSEPHSON questioned whether legislative changes are
needed to facilitate the aforementioned timing [of the release
of data before lease sales].
COMMISSIONER MACK answered that DNR seeks an ongoing dialogue in
this regard. The current statutory language directs the release
of data but does not address possible benefits to the state from
said release.
1:56:50 PM
ED FOGELS, Deputy Commissioner, Office of the Commissioner, DNR,
informed the committee the Division of Mining, Land and Water
(DMLW) is a foundational division for DNR and serves as Alaska's
real estate agency. The division is responsible for obtaining
the state's land entitlement from the federal government, and
managing the state's land holdings, water, and mines. The
division issues thousands of permits ranging from material sales
and boat docks to placer mines, and the division's present focus
is to improve its organizational efficiency.
1:57:58 PM
BRENT GOODRUM, Director, Central Office, Division of Mining,
Land and Water, DNR, gave a short personal background. He
informed the committee that the division is responsible for
managing almost 160 million acres, and its core services include
acquiring land. The state remains entitled to 5 million acres,
and the division seeks to make good selections, acquire clean
title, and legal public access. All submerged land beneath
navigable water bodies are owned by the state, and the division
creates plans for the intended uses and management of lands,
which are updated every 20 years. In addition, the division
transfers land into municipal and private ownership, which
provides opportunities for Alaskans. The division is
responsible for short- and long-term authorizations for the use
of land and water, and regulates water use, safety, unorganized
platting review, and activities related to coal and mining
reclamation. The division provides active stewardship of land
and waters and collects revenues for the use of state land
(slide 13). In 2016, the division generated $28.4 million in
revenue. One of its projects on the North Slope was issuing
authorizations to facilitate a major fiber-optic cable project
to improve communications. Currently underway is the North
Slope Area Plan that is being prepared for public review, and
which is important to the North Slope Borough's municipal
entitlements. Further, the division adopted the Eastern Tanana
Area Plan which provided guidance for over 2.3 million acres of
state land. Recently, the division issued a preliminary
decision for the Lake and Peninsula Borough municipal
entitlement.
MR. GOODRUM continued, noting that the division filed an action
against the federal government to establish clear title to
submerged lands beneath navigable water bodies, and was awarded
attorney's fees and costs in the amount of $600,000.
REPRESENTATIVE JOHNSON asked how much municipal land remains to
be conveyed from the federal government.
MR. GOODRUM said the North Slope [Borough] is owed a significant
amount of land; the total amount that may be granted to a
municipality is identified by statute and regulation, and a
formula determines the amount. The state works with
municipalities and boroughs to identify lands that are
appropriate to convey. He clarified that the federal government
owes the state over 5.3 million acres; however, the state
conveys municipal entitlement land to municipalities.
2:06:59 PM
MR. FOGELS offered to provide the committee with the status of
[pending] municipal entitlements.
CO-CHAIR JOSEPHSON said he was interested in the entitlements
that are due Nikiski.
2:07:40 PM
MR. GOODRUM continued, stating that the division is
investigating state land on the North Slope east of the Point
Thomson Unit. The state has the authority to select additional
land, however, there are disagreements with BLM on the mapping
and survey techniques that are utilized by the federal
government. The division also worked with BLM on BLM's offer to
convey land based on "a unique survey methodology ... at this
point ... it's a continuing dialogue." Mr. Goodrum expressed
his interest in finding good solutions as to how the state's
remaining land entitlements will be surveyed. Finally, he
pointed out that the division is tasked with conducting tundra
travel openings - which are determined by weather and ground
conditions - and announced that the eastern and western coastal
areas are open for certain travel methods. In 2016, 173 miles
of ice roads and additional snow roads were authorized (slide
14).
REPRESENTATIVE PARISH asked whether remaining land selections
will be based on the aforementioned seismic mapping.
MR. GOODRUM confirmed that the division considers many factors
prior to selecting land. At one point in time the state was
required to identify possible selections, thus approximately 20
million acres have been [tentatively] selected, and selected
lands will have known and potential resources. Unfortunately,
some of the land the state seeks is not currently available due
to public orders that withdraw land from the public domain.
This issue remains under discussion between the [state]
administration, the Alaska congressional delegation, and federal
agencies.
REPRESENTATIVE RAUSCHER asked for an estimate of how many miles
of ice roads will be built this year.
MR. GOODRUM was unsure. He explained that the need for ice
roads varies with oil companies' winter activities, and offered
to provide an estimate.
2:13:18 PM
REPRESENTATIVE RAUSCHER recalled that the federal government is
looking into the [Wishbone Hill Mine], and he asked for DNR's
present position on the project.
MR. FOGELS responded that DNR has on ongoing dispute with the
Office of Surface Mining Reclamation and Enforcement, U.S.
Department of the Interior, regarding permitting at the Wishbone
Hill Mine. The federal office alleges that an error in DNR's
permit 15 years ago invalidated the permit, although the
operator was informed by the state and federal governments that
the permit was valid, thus the operator has been acting in good
faith. The mine is not in production; DNR has been "pushing
back on that" and is evaluating an appeal of the permit decision
at this time.
MR. FOGELS returned attention to an earlier question, and
emphasized that 5 million acres are left in the state's land
entitlement from the federal government. He cautioned that the
state should not rush, but be careful and select the best land.
Federal encumbrances prevent the selection of some of the best
known land; however, much of the land available remains unknown,
and he urged for the state to make measured choices.
REPRESENTATIVE PARISH questioned how the data available is
analyzed, and whether additional land grants from the federal
government are forthcoming.
MR. FOGELS advised that division staff is analyzing and
publishing the data. In response to the second question, he
said more land from the federal government would need to be
authorized by Congress.
COMMISSIONER MACK and Mr. Wiggin provided brief background
information on Ms. Walsh, Director, Division of Oil & Gas (DOG).
2:19:58 PM
CHANTAL WALSH, Director, Central Office, DOG, informed the
committee the Division of Oil & Gas has 112 employees and an
operating budget of over $22 million, of which 40 percent is
UGF. The responsibility of the division is to conduct lease
sales, collect royalties, authorize oil and gas activities, and
regulate common-carrier pipelines for the state. In support of
its objective, DOG provides commercial analysis, economic
modeling, financial risk assessments, and audits, following its
mission, which is to maximize prudent use of the state's
petroleum resources for the greatest benefit of all Alaskans
(slide 15). In 2016, DOG held the second largest North Slope
lease sale by acreage, leasing approximately 600,000 acres. The
lease sale also generated the third largest amount of revenue
since 1998. Adding the Beaufort Sea to the lease sale, the
state received $17.8 million and added 33,000 acres in the
Beaufort Sea area. Next, she turned to the aforementioned
release of seismic data, adding that in the lease sale of 2016
were two seismic parcels, one in Cook Inlet and one on the North
Slope, which was "picked up by a new player for the North
Slope." For the first time, DOG prepared a production forecast
in use by the Department of Revenue (DOR), which DOG strongly
believes is a probabilistic approach to previous performance,
and that reveals a more accurate view of near- and long-term
production. Ms. Walsh opined that the aforementioned production
forecast is a lean - but not a conservative - production
forecast, as many factors have driven production up late in
2016; however, the state is "riding the wave of some great
activity on the North Slope in 2014 and [2015] and there's a lag
period for that." She cautioned that 2016 has less activity,
thus the forecast is an average forecast. Also in 2016, DOG
verified and received almost $1 billion in royalties, rents, and
bonus bids on lease sales, and issued seven royalty audits,
three of which were for the federal government, and others for
ConocoPhillips Alaska, Inc. and BP, that contributed $27 million
to state revenues.
MS. WALSH continued, noting that the Federal Energy Regulatory
Commission (FERC) issued an order for the Trans-Alaska Pipeline
System (TAPS) to reduce its tariffs for the period from 2009 to
2016, resulting in $90 million in additional royalty revenue to
the state.
2:25:09 PM
CO-CHAIR JOSEPHSON requested further information on the
aforementioned federal audits, and inquired as to whether FERC
concluded that TAPS tariffs were too high.
MS. WALSH said yes. The transportation tariffs were too high,
thus less money should have been taken from the state's
royalties. In further response to Co-Chair Josephson, she said
the state was a "passive entity"; in fact, the request to FERC
to investigate the tariffs was initiated by carriers. She
returned to the presentation, and stated that additionally in
2016, DOG coordinated state agencies in processing permits and
finalized [FERC] Resource Reports for the Alaska LNG Project
(AKLGN) and the Alaska Stand Alone Pipeline (ASAP). In
addition, DOG negotiated two royalty-in-kind (RIK) contracts
which sell state oil to Petro Star Inc., and Tesoro. She
clarified that through RIK contracts, the state takes the value
of its royalty in barrels of oil, which is a financial advantage
to the state, protects local jobs, and provides fuel.
REPRESENTATIVE PARISH surmised that the state was shorted $90
million [in regards to the FERC TAPS tariff revision].
MS. WALSH explained that to get its royalty value the state
removes transportation costs; after carriers asked FERC to
reassess the tariff, FERC lowered the value of transportation,
thus the state was owed royalty and interest.
2:29:06 PM
REPRESENTATIVE PARISH referred to the advantages to the state
related to its [RIK contracts] with Petro Star and Tesoro, and
questioned whether there are similar opportunities in this
regard.
MS. WALSH assured the committee that the division will continue
to explore all similar avenues.
CO-CHAIR JOSEPHSON expressed his understanding that there is a
limited domestic need for instate RIK.
2:30:14 PM
COMMISSIONER MACK informed the committee that a certain amount
of royalty comes from TAPS throughput, and the state
historically has provided oil to the facilities of instate
processors such as Petro Star and Tesoro. Although not in
statute, DNR makes oil available and has negotiated a previous
contract with Tesoro. The department will present new
legislation for a contract providing crude oil to Petro Star's
facility so that it can continue refining instate. He advised
that many sources of oil are needed for a refining business.
Commissioner Mack stated that DNR will explain this process in
detail at a later date.
MS. WALSH returned attention to RIK contracts, and pointed out
that with the addition of the Petro Star [contract], the portion
of RIK that the state takes is 95 percent of its portion -
leaving 5 percent of that as royalty in value - which is close
to the maximum RIK that can be taken from the pipeline.
CO-CHAIR JOSEPHSON asked for clarification and observed that
most of the state's royalty oil is converted to cash for either
the general fund or the Alaska Permanent Fund Corporation. He
surmised that a small portion becomes RIK, and said "95 percent
of that opportunity has been used up ...."
COMMISSIONER MACK said correct. The department seeks what is in
the best interests for the state: to take the oil in kind and
sell it on the market, or ROV, which is selling the oil back to
the producers. The administration's policy is to evaluate both
options, and instate refiners employ many, but he emphasized
that the state has "maxed out the sale of royalty oil to two
instate refiners ...."
REPRESENTATIVE PARISH surmised the state can have a bigger share
of RIK oil through contract negotiations with individual
producers. He asked whether jobs produced and economic activity
are factored into the advantages to the state - in addition to
cash value - in RIK transactions.
MS. WALSH advised that when the state sells RIK oil out of
Valdez, it is not burdened with transportation costs to the
Lower 48, as it would be with ROV, and savings on transportation
costs create a small financial benefit to the state.
REPRESENTATIVE PARISH concluded that removing additional
transportation costs creates a higher value for the resource,
and economic activity and jobs created thereby are a bonus.
MS. WALSH said correct. She returned to the presentation and
said the final accomplishment for DOG in 2016 was finalization
of the dismantlement, removal, and restoration (DR&R) agreement
with Chugach Electric Association Inc., and Anchorage Municipal
Light and Power (ML&P), purchasers of Beluga River [Unit] assets
from ConocoPhillips Alaska, Inc. The purchasers have acquired
additional liabilities for DR&R, and DOG and DNR established
liability accounts in this regard.
MR. FOGELS introduced Dr. Longan, the director of the Office of
Project Management & Permitting, and informed the committee that
this division's central role is to coordinate permitting for
large, complex, resource development projects within the state.
2:38:35 PM
SARA LONGAN, Executive Director, Office of Project Management &
Permitting, DNR, stated that the Office of Project Management &
Permitting (OPMP) supports private industry, regulators, and the
general public by implementing a one-stop permit-coordination
shop to help secure a consistent and timely permit process. The
office is "rather self-sufficient" with the majority of its FY
17 $7.8 million budget paid through revenue generated from
private sources. This is accomplished through voluntary
agreements with mining or oil companies and thereby, OPMP covers
its operational expenses and distributes funding to other
affected state agencies with similar responsibilities.
Continuing in FY 17, OPMP has 15 employees who earn "a high
level of praise and acceptance" for OPMP's coordination model
which is unique to Alaska, and was developed in the '90s during
the onset of the Fort Knox Mine. This model assures companies
that permit reviews are robust, transparent, and timely (slide
19). In 2016, OPMP provided service in support of the state's
most critical oil and gas projects including: the Nanushuk
Project by Armstrong, which could produce 120,000 barrels of oil
per day into TAPS; Greater Moose's Tooth 1 and 2, by
ConocoPhillips Alaska, Inc.; Point Thomson projects by
ExxonMobil Corporation; the Liberty project for Hilcorp, which
could be the first production from federal offshore leases; the
Smith Bay discovery by Caelus Energy; and the Nikaitchuq project
by Eni.
DR. LONGAN, turning to mining, said that OPMP has a well-
established mining team which coordinates proposed and operating
mines such as: Donlin Gold, Fort Knox, Kensington, Nixon Fork,
Pogo, Red Dog, and Chuitna. She explained that OPMP dedicates
time and resources to its role engaging with federal agencies in
regard to the National Environmental Policy Act (NEPA) reviews
for energy and mining projects. Further, the division acts as
the state's lead agency related to reviews of federal land
management plans such as development in the National Petroleum
Reserve-Alaska (NPR-A), outer continental shelf (OCS)
activities, and issues related to the Alaska National Wildlife
Reserve, area 1002 (ANWR-1002). With support from the
legislature, agencies, and the public, OPMP is seeking to
establish a statewide wetlands mitigation program, which is
currently under review by the U.S. Army Corps of Engineers. She
explained that [Section 404] of the Clean Water Act requires
that developers complete "a major federal authorization and
regulatory process." Although the cost of mitigation to offset
unavoidable impacts to aquatic resources is increasing, the
financing options for mitigation have been reduced. If
successful, a statewide mitigation program will lower project
development costs and generate state revenue. Also in 2016,
OPMP renewed a memorandum of understanding (MOU) with the North
Slope Borough to address issues related to North Slope oil and
gas development, and to commit both agencies to collaborate and
communicate. Another successful program is OPMP's coordination
of the Alaska Geospatial Council's efforts to develop an
accurate topographic base map of Alaska. At this time, mapping
covers 77 percent of the state, and she stressed the importance
of mapping to explorers and local entities.
2:46:36 PM
REPRESENTATIVE RAUSCHER questioned whether the geospatial
project is a light detection and ranging (LIDAR) project.
DR. LONGAN said yes.
REPRESENTATIVE PARISH recalled the Alaska Mental Health Trust
Authority is considering mitigation marketing and sales [for]
carbon credits, and asked whether OPMP is working with the
Trust.
DR. LONGAN said yes. The division is working with various
stakeholders to understand their mitigation needs, not only for
the oil and gas industry.
MR. FOGELS, returning to an earlier question, clarified that the
technology used in geospatial mapping is similar to LIDAR, but
the interferometric synthetic aperture (IfSAR) imagery used is
taken from 30,000 feet and provides five-meter accuracy.
CO-CHAIR TARR returned attention to OPMP's [proposed] statewide
mitigation program and expressed her understanding that 404
permits currently come through BLM. She questioned whether the
state would establish primacy over BLM though another federal
agency.
2:49:15 PM
DR. LONGAN answered that 404 permits are administered by the
U.S. Army Corps of Engineers. At the time ConocoPhillips
Alaska, Inc., sought a 404 permit from the Corps of Engineers
and a right-of-way from BLM within NPR-A, it was required to pay
additional mitigation costs because of the Clean Water Act "404
program." There has been momentum from Washington, D.C.
requiring the Corps of Engineers, BLM, and other federal
agencies to establish individual mitigation policies. She
advised that additional mitigation policies will probably be
reevaluated by the incoming federal administration. Further,
over two years ago, DNR partnered with the Department of
Environmental Conservation (DEC) to evaluate whether the state
should seek Clean Water Act jurisdiction from the Corps of
Engineers. In this regard, research showed that the state's
assumption of this federal function is complicated by the
proposed Waters of the United States (WOTUS) rules that have now
been issued. Dr. Longan remarked:
The intent was clarification of what types of wetlands
and water bodies would be jurisdictional under the
Clean Water Act .... It generated a lot more
confusion, it was litigated almost immediately, and
the WOTUS rule ... is sort of in ... lawsuit
purgatory. It's another rule that I believe the
incoming administration will be asked to take a look
at.
2:52:17 PM
CO-CHAIR TARR surmised Alaska would have been the first state to
pursue [assumption of the federal function of 404 permits].
MR. FOGELS noted that Alaska would be the third state to
establish primacy.
CO-CHAIR TARR understood that the state does not have funds to
continue the effort, but has the information gleaned.
DR. LONGAN said correct. Further, DEC discovered from the two
states that have assumed jurisdiction that the regulatory
program is sizable and expensive to administer. Therefore, in
order to address the problem of additional mitigation costs and
less opportunity for companies to acquire mitigation credits,
OPMP believes a more direct solution is to pursue development of
the statewide wetlands mitigation program.
2:55:10 PM
FABIENNE PETER-CONTESSE, Director, Central Office, Division of
Support Services, DNR, gave brief background information. She
informed the committee the Division of Support Services (SSD)
differs from other administrative services divisions in that it
has the following three components:
· The information resource management (IT) section, which is
the keeper of the land records for the state, provides
desktop and network support, business application
development, and geographic information systems (GIS)
· The recorder's office of uniform commercial code, which
records documents in the state permanent record
· The administrative services section, which provides
management to help with the budget for the department,
financial management, procurement, human resources, and
also processes the revenue that flows to the state through
DNR.
MS. PETER-CONTESSE noted that in 2016, the division continued
work on a consolidation of desktop support with the Department
of Administration (DOA), saving DOA about $200,000. In
addition, the division's IT component is streamlining the
permitting process with the Division of Mining, Land and Water
to implement the uniform permitting system. The recorder's
office component has provided electronic recording statewide,
reducing costs by $450,000, eliminated eight positions, and
closed six offices, all without loss in state revenue. Finally
in 2016, the administrative services component participated in
the shared statewide initiative to consolidate and streamline
processes related to travel and accounting.
REPRESENTATIVE BIRCH asked how land status related to rights-of-
way is monitored.
MR. FOGELS responded that the division tracks state land records
after the land becomes state land. The Bureau of Land
Management tracks, for example, land records for Native
corporation land that is conveyed from the federal government.
As DMLW sells a subdivision, the information is sent to SSD thus
the management conveyances happen in DMLW, and are recorded by
SSD. In further response to Representative Birch, he explained
that a legally established right-of-way or lease on state land
would be noted on the land plats, and subsequently would be
excluded from sale by DMLW.
3:03:00 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:03 p.m.