Legislature(1993 - 1994)

04/11/1994 09:15 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    SENATE FINANCE COMMITTEE                                   
                         April 11, 1994                                        
                            9:15 a.m.                                          
  SFC-94, #58, Side 1 (263-end)                                                
  SFC-94, #58, Side 2 (575-end)                                                
  SFC-94, #60, Side 1 (000-338)                                                
  CALL TO ORDER                                                                
  Co-chair Drue Pearce  convened the meeting  at approximately                 
  9:15 a.m.                                                                    
  In addition to  Co-chairs Pearce and Frank,  Senators Kelly,                 
  Kerttula, and Sharp were present.  Senator Rieger arrived as                 
  the meeting was in progress.  Senator Jacko did not attend.                  
  ALSO ATTENDING:  Senator Adams; Senator Leman; Senator Salo;                 
  Shelby  Stastny, Director, Office  of Management and Budget;                 
  Ken Boyd, Deputy Director, Division of Oil and Gas, Dept. of                 
  Natural  Resources;  Mike   Greany,  Director,   Legislative                 
  Finance Division; and  aides to committee members  and other                 
  members of the legislature.                                                  
  SUMMARY INFORMATION                                                          
  SB 308 -  ADMIN ACTION RE LAND/RESOURCES/PROPERTY                            
            Co-chair  Pearce advised  that  amendments to  the                 
            bill were still being drafted.   She then directed                 
            that discussion  be  continued  to  the  afternoon                 
            portion of the meeting.  The bill was thus HELD in                 
  HB 199 -  OIL & GAS EXPLORATION LICENSES/LEASES                              
            Lengthy overview and  discussion was had  with Ken                 
            Boyd of the Dept. of  Natural Resources.  The bill                 
            was subsequently HELD  in committee for  placement                 
            on the April 12, 1994, agenda.                                     
  HB 505 -  APPROP: BUDGET RESERVE FUND TO GEN.FUND                            
            Overview and  updated information was  provided by                 
            Shelby Stastny, Office  of Management and  Budget.                 
            The bill was  then HELD  in committee for  further                 
  SENATE BILL NO. 308                                                          
       An   Act   modifying   administrative  procedures   and                 
       decisions by  state agencies  that relate  to uses  and                 
       dispositions of  state land,  property, and  resources,                 
       and to  the interests within  them, and that  relate to                 
       land,  property,  and resources,  and to  the interests                 
       within them, that are subject to the coastal management                 
       program; and providing for an effective date.                           
  Co-chair Pearce announced that although it was scheduled, SB
  308 would  not be  discussed at  the present  meeting.   She                 
  explained that an amendment was being drafted and would  not                 
  be available until later in the day.                                         
  HOUSE BILL NO. 505                                                           
       An  Act   making  appropriations   to   and  from   the                 
       constitutional budget reserve fund under  art. IX, sec.                 
       17(c),  Constitution   of  the  State  of  Alaska,  for                 
       operating and capital expenses of state  government for                 
       fiscal year 1994; and providing for an effective date.                  
  Co-chair Pearce  directed that  CSHB 505  (Fin)(brf fld)(efd                 
  fld)  be  brought before  committee  for presentation  of an                 
  overview by representatives of the  administration.  The Co-                 
  chair referenced  file materials  consisting of  transmittal                 
  information from the Governor, the  original House Bill, and                 
  the  version  that   ultimately  passed  the  House.     She                 
  specifically noted House failure of  both the budget reserve                 
  fund and the effective date.                                                 
  Senator Kerttula inquired concerning a  legal analysis.  Co-                 
  chair Pearce said there  is none.  She explained  that Judge                 
  Reese provided a one-page decision with details to follow.                   
  SHELBY STASTNY,  Director, Office of  Management and Budget,                 
  came  before committee.    He  advised  of support  for  the                 
  original  bill as  submitted  by the  Governor  and lack  of                 
  support for the version passed by  the House.  The intention                 
  of  HB  505 was  to lay  out  in the  findings a  history of                 
  amounts  flowing to the  constitutional budget  reserve fund                 
  and   thereafter   placed  in   the   general  fund.     The                 
  administration believes  that action taken  by the  attorney                 
  general was  appropriate.   The administration  subsequently                 
  did as required and followed  the attorney general's opinion                 
  in placing moneys  in the  general fund.   To cure  problems                 
  raised   in   litigation,   the    administration   proposed                 
  appropriation of $945  million from the general  fund to the                 
  constitutional budget  reserve fund.   Addition  of interest                 
  through the end of  March brings the total to  $978 million.                 
  Once  appropriated to  and deposited  in the  constitutional                 
  reserve, the funding would  be immediately transferred  back                 
  to  the general  fund to  meet ongoing  expenditures.   That                 
  action would satisfy the court's direction.                                  
  The  administration's proposal  was  that  funding would  be                 
  transferred   under  Sec.   17(c)   of  the   constitutional                 
  amendment--the subsection that  requires the  three-quarters                 
  Discussion followed between Co-chair  Pearce and Mr. Stastny                 
  concerning disputed amounts to accrue to the  constitutional                 
  budget  reserve.  Mr.  Stastny advised  of ongoing  Dept. of                 
  Revenue research over whether the amount in question was the                 
  acknowledged $70 million  or up to $200  million--the amount                 
  collected on cases where an assessment was made but the case                 
  was settled prior to informal conference.                                    
  Co-chair  Frank referenced  SB  331 (APPROP:  BUDGET RESERVE                 
  FUND TO GEN.FUND), the Senate version of the bill, and noted                 
  that Sec. 4  appropriation of $416.6 million  represents the                 
  amount  the  legislature  anticipated  would  be  needed  to                 
  balance the  current budget.    Mr. Stastny  concurred.   He                 
  added, however, that with the reduction in revenues from the                 
  decline in oil  prices, an additional $529  million will now                 
  be required to fund the budget.  Further, "another couple of                 
  hundred  million dollars" will be required  "to be taken out                 
  by a vote to fund capital  and operating budgets."  Co-chair                 
  Frank voiced his understanding that Sec. 6 would appropriate                 
  an unspecified amount  to be  determined at the  end of  the                 
  fiscal year.  Mr.  Stastny concurred.  The last  estimate of                 
  that amount is  approximately $350 million.   Co-chair Frank                 
  noted that  foregoing amounts  total the  $1.3 billion  draw                 
  from the constitutional  reserve needed to bring  the budget                 
  "flush to the  end of fiscal  year 94."   Mr. Stastny  again                 
  Senator Kerttula asked  if Judge  Reese's decision would  be                 
  appealed.  Mr. Stastny said  that the administration intends                 
  to await  a  detailed explanation  of  the ruling  prior  to                 
  making a decision.  He then voiced his personal opinion that                 
  appeal would be pursued.                                                     
  Senator  Rieger  inquired  concerning   the  total  of   the                 
  constitutional  budget reserve fund  once the  proposed $945                 
  million is  appropriated  back to  the  fund.   Mr.  Stastny                 
  responded, "about $1.7 billion."   The Senator then observed                 
  that  approximately  $400  million  would  remain  following                 
  withdraws  to  satisfy  FY  94 budget  needs.    Mr. Stastny                 
  In response to questions from  Senator Kerttula, Mr. Stastny                 
  said that while the administration may  not agree with Judge                 
  Reese's  opinion   that  HB  58   is  unconstitutional,  the                 
  administration believes that  appropriations should be based                 
  on a  three-quarter vote  to eliminate  the question in  the                 
  Co-chair   Frank   voiced   his    recollection   that   the                 
  administration  supported  the  House plan  for  funding  of                 
  education from  the budget reserve.   Mr. Stastny  said that                 
  the administration is supportive of  any reasonable approach                 
  that "gets the three-quarter vote."                                          
  Mr. Stastny next  spoke to $150  to $200 million in  funding                 
  based on assumptions of transfers  from AHFC ($180 million),                 
  and a $60 million transfer  from AIDEA resulting from  AIDEA                 
  purchase  of assets  owned  by  the  Dept. of  Commerce  and                 
  Economic Development.  He further advised of an agreement by                 
  the  administration  to  a  $50  million  reduction  in  the                 
  proposed  budget.    Calculation  of  all of  the  foregoing                 
  results  in   a  $130  or   $140  million  balance   in  the                 
  constitutional budget reserve  fund after funding of  the FY                 
  95 budget.  The  current spending plan indicates that  if at                 
  the end of  FY 95 the state continues to spend, based on the                 
  Governor's budget and the latest  revenue projection, at the                 
  end of FY  95 the constitutional  budget reserve fund  would                 
  have a -$82 million balance,  "assuming everything is funded                 
  out of the  constitutional budget reserve fund."   The above                 
  $50 million  reduction, moneys transferred  from AHFC  ($180                 
  million) and AIDEA ($60 million), and one half ($60 million)                 
  of  hoped  for  additional tax  revenues  provide  a counter                 
  Senator Kerttula inquired  concerning support for additional                 
  taxes.    Mr.  Stastny  acknowledged  that  revenue  raising                 
  measures had not received a warm reception.                                  
  In response to  a question from  Senator Kelly, Mr.  Stastny                 
  said that the  $50 million reduction would  be unrestricted.                 
  It could flow from both operating and capital funding.                       
  Senator  Kerttula  asked  if  future  settlements  had  been                 
  factored into spending  plans.   Mr. Stastny responded  that                 
  while  the administration  is aware of  them, they  were not                 
  factored into budget projections.                                            
  Co-chair Pearce called for additional  questions.  None were                 
  forthcoming.  She advised that CSHB 505 (Fin) (brf fld) (efd                 
  fld) would be HELD in committee for further review.                          
                       RECESS - 9:40 A.M.                                      
                      RECONVENE - 9:50 A.M.                                    
  HOUSE BILL NO. 199                                                           
       An Act providing for oil  and gas exploration licenses,                 
       and oil and gas leases, in  certain areas of the state;                 
       and providing for an effective date.                                    
  Co-chair Pearce directed that CSHB 199 (O&G)am be brought on                 
  for discussion  and referenced  a work  draft  SCS CSHB  199                 
  (Fin)  (8-GH1012\Q, Chenoweth,  3/22/94), two  amendments by                 
  Senator Kerttula, and  March 29, 1994, correspondence  (copy                 
  appended to these minutes as Attachment A) from the Dept. of                 
  Natural  Resources  containing  a  comparison  of House  and                 
  Senate  legislation.    She  advised  that the  "Q  version"                 
  incorporates provisions  from Senator Leman's  version of SB
  KEN BOYD, Deputy Director, Division of Oil and Gas, Dept. of                 
  Natural  Resources, came  before  committee.    He  directed                 
  attention  to the side-by-side  comparison (Attachment A) of                 
  the Senate bill heard last year  and the proposed House bill                 
  and explained that both industry and the state were in favor                 
  of  the  program  but  differed  in  individual  approaches.                 
  Interim work with 18 companies  (both in Alaska and Houston)                 
  achieved consensus between single entrepreneurs, the largest                 
  oil companies, and everyone in between.                                      
  End:      SFC-94, #58, Side 1                                                
  Begin:    SFC-94, #58, Side 2                                                
  Co-chair  Frank  voiced  need for  an  understanding  of the                 
  purpose  of the bill as  well as deficiencies and advantages                 
  of licensing and  leasing programs.   Mr. Boyd  acknowledged                 
  that the current state leasing program has worked well for a                 
  number of years.   Lease sales  of three-mile by  three-mile                 
  squares  (5,760  acres)  have  resulted  in  a  checkerboard                 
  pattern of ownership.  However, when over a million acres on                 
  the north slope of  the Brooks Range were  recently offered,                 
  no one came to  the sale.  Exploration licensing  provides a                 
  company a large amount of land to explore, in exchange for a                 
  work commitment.   The original bill provided  for 2,500,000                 
  acres.  Through  discussions with companies, the  amount now                 
  allowable under license totals 500,000 acres.                                
  Mr. Boyd explained that the purpose of the bill is "to chase                 
  geology."   The proposal  must be  balanced with  the dollar                 
  amount of the work commitment and a determination of whether                 
  or  not the proposal makes sense.   Licenses primarily apply                 
  in  areas  that  have  not  been  explored.    They  provide                 
  companies  with  money and  a  work commitment  a  chance to                 
  explore, unencumbered by  people who might have  plans to do                 
  something else with adjacent lands.                                          
  Co-chair  Frank  asked  why the  department  proposes  a new                 
  licensing program rather  than merely expanding the  size of                 
  tracts under the leasing  program.  Mr. Boyd  explained that                 
  licensing relates only to the  exploration phase.  Following                 
  exploration, part  of the  land may be  converted to  lease.                 
  Mr. Boyd attested  to need  for leases to  remain small  for                 
  future administrative purposes.   A large block  of licensed                 
  land  converted to lease  under that  program would  be more                 
  difficult to  deal with.    The major  difference between  a                 
  license  and a  lease  rests  in  the  fact  that  licensing                 
  provides for exploration by a  company or group of companies                 
  with a commitment to "do 25% of the work within four years."                 
  That  provides  certainty  that an  entity  does  not merely                 
  license  the land and  then sit on  it.  The  entity must do                 
  some of the work or lose its license.                                        
  Co-chair  Frank  voiced  his understanding  that  the  lease                 
  program  originally  contained work  commitments.   He  then                 
  recalled  that  that  philosophy  was abandoned  because  of                 
  associated  problems.     Mr.  Boyd   acknowledged  problems                 
  associated  with constraints.   Requiring a  work commitment                 
  during the exploration licensing phase is a better approach.                 
  In response to  an additional question from  Co-chair Frank,                 
  Mr. Boyd explained that the work commitment does not specify                 
  the type of work  to be done.  The license  is awarded based                 
  on  "whoever  bids  the  most  money  . .  ."  in  the  work                 
  commitment.  The  department will be  able to tell from  the                 
  amount proposed, what kind of work will need to be done.  In                 
  some basins wells will be drilled  as part of the commitment                 
  while in other areas geophysical work will be done.                          
  Co-chair  Frank  asked   if  a   licensee  would  have   the                 
  opportunity to convert the whole 500,000 acres under license                 
  to lease.  Mr. Boyd responded, "Only to the extent that they                 
  had fulfilled their entire work  commitment obligation."  He                 
  cited as an  example an instance where a licensee  had a $50                 
  million commitment over a ten-year period.   If the licensee                 
  spent  $25 million to drill a  successful well, the licensee                 
  would not have  the right to  "take anything to lease  until                 
  they  spend  the other  $25 million."    A licensee  may not                 
  convert to lease  until the entire work  commitment has been                 
  fulfilled.  There  is no  intermediate conversion to  lease.                 
  Everything  happens  at  the  end  of  the  licensing  term.                 
  Further,  if  the  licensee does  not  do  25%  of the  work                 
  commitment, it  loses its license.   If it  does 50% of  the                 
  commitment in four  years, it can keep the land.  If between                 
  26% and  49% is done by  the fourth year, the  licensee must                 
  return  25%  of the  acreage  to the  state and  10%  of the                 
  acreage each succeeding year for the term of the license.                    
  Senator  Kerttula voiced  his understanding that  a licensee                 
  could secure four  adjoining 500,000-acre areas for  a total                 
  two-million-acre exploration  area.    Mr.  Boyd  concurred,                 
  advising that two  million acres is  the cap for land  under                 
  license.  Under lease, the 500,000-acre  limit, in state law                 
  for a long time, still applies.                                              
  Senator Kelly asked if the  existing licensing program would                 
  be repealed  and  converted to  exploration licensing  only.                 
  Mr. Boyd advised that no licensing program presently exists.                 
  The existing  leasing program  would  not be  repealed.   He                 
  further advised that  lands on the  North Slope and most  of                 
  Cook Inlet would be off limits  to the licensing program and                 
  handled through the ongoing lease program.                                   
  The reason for the licensing program is that lands that fall                 
  within it have been available for  leasing for a long period                 
  of time, and no one has  shown much interest in them.   They                 
  are  risky, remote,  and potentially  expensive to  develop.                 
  The  proposed bill  is intended to  give companies  with the                 
  time, money, and inclination the ability to explore.                         
  Mr.  Boyd  next  referenced  maps  showing the  geographical                 
  restrictions  of  the  program.    He then  noted  modifying                 
  language  restricting  surface  entry  in  the  Bristol  Bay                 
  Fisheries Reserve.                                                           
  Mr. Boyd next spoke to  relinquishments.  He explained  that                 
  exploration   licensing   is   utilized   world  wide,   and                 
  concessions  are  features  of  many  programs.    Consensus                 
  provisions require that:                                                     
       1.   If at the end of the fourth year of licensing, the                 
            licensee  has  not  done  50%  of  the  work,  the                 
            licensee must begin relinquishing land.                            
       2.   If 50% of  the work commitment has  been fulfilled                 
  by the                                                                       
            end of the fourth year, there is no relinquishment                 
       3.   If 25% of the work has not been done by the fourth                 
            the license is cancelled.                                          
       4.   For work effort that falls  within the 26% to  49%                 
            relinquishment  begins and 25% must be returned at                 
            the end of  the four-year period.   Ten percent of                 
            the remaining  acreage is  relinquished each  year                 
            thereafter for the term of the license.                            
  Industry believes that this arrangement  gives it a positive                 
  opportunity to "not have relinquishments."   The 50% relates                 
  to the  total  work commitment  and is  auditable in  dollar                 
  amounts.  There is no schedule requiring a certain amount of                 
  work  to be  done each  year.   The measuring  point is  the                 
  fourth year  when 50% of the work must  have been done.  The                 
  Commissioner evaluates  the number  of dollars  spent rather                 
  than the scope of the work performed.                                        
  Mr.  Boyd  noted  that bonding  requirements  are  linked to                 
  relinquishments.    The  proposed  bill  contains a  bonding                 
  formula which  determines  the amount  of the  bond for  the                 
  upcoming year.  Mr. Boyd directed  attention to Page 4, Line                 
  10,  and   read  formula  provisions.     Comments  followed                 
  regarding application  of the  formula using  a $10  million                 
  work commitment as an  example.  Failure to post  the annual                 
  bond will result in cancellation of the license.                             
  Co-chair Frank  inquired concerning  need for  a bond.   Mr.                 
  Boyd described the relationship between the bond and the bid                 
  amount.  He spoke to need to be able to determine whether or                 
  not a  bid is legitimate.   The bond forces  companies to be                 
  responsible  in  both  the  bidding  process  and  the  work                 
  commitment over the term of the license.                                     
  Mr. Boyd advised  of objection by  many companies to bid  by                 
  oral outcry.   To cover situations where  multiple companies                 
  are  interested in  exploration  licensing  in a  particular                 
  area, the  final determination will  be made by  sealed bid.                 
  That was part of the compromise.                                             
  Speaking to conversions, Mr. Boyd pointed to bill provisions                 
  establishing  license areas  at between  20,000 and  500,000                 
  acres.   All or  part of license  areas may be  converted to                 
  lease tracts.   The  amount  of land  that  can be  held  by                 
  license  is limited to  2 million acres.   Current statutory                 
  restrictions  limiting  lease holdings  to  1  million acres                 
  (500,000 acres of  upland and 500,000 acres  offshore) would                 
  apply  to license conversions.   The proposed  bill does not                 
  change that restriction.                                                     
  The legislation  establishes a floor  of 20,000 acres  and a                 
  ceiling of 500,000 acres under license.   Mr. Boyd described                 
  the  situation that led to establishment  of the 20,000 acre                 
  floor.  The  public notice process, best  interest findings,                 
  and other  process requirements,  do not  make licensing  of                 
  small areas feasible.   The acreage  cap of 2 million  acres                 
  under license at any one time was added in the House bill.                   
  The application fee of not more than $1.00 per acre responds                 
  to concerns raised by small companies.   The fee is intended                 
  to eliminate  the nuisance  of entities  "that could  never,                 
  ever .  .  . or  even want  to really  be  in the  program."                 
  Senator Kerttula voiced his belief that licensees should pay                 
  $1.00 per acre.  Mr. Boyd  described the discussion with oil                 
  company representatives that  led to fee provisions  of "not                 
  more than $1.00 an acre."                                                    
  End:      SFC-94, #58, Side 2                                                
  Begin:    SFC-94, #60, Side 1                                                
  In  response to  a  question from  Co-chair Frank,  Mr. Boyd                 
  acknowledged  that  the  license  fee  may be  different  in                 
  different areas.  He  advised that fees would be  worked out                 
  in  regulations.   In  compromise discussions,  participants                 
  felt this one-time fee was appropriate.                                      
  Mr.  Boyd next  advised that  provisions lowering  financial                 
  responsibility for onshore exploration facilities from $5 to                 
  $1  million  have been  removed from  the proposed  bill and                 
  incorporated within separate legislation (SB 239).                           
  Mr.  Boyd referenced  the annual  $3.00 lease  fee  per acre                 
  applicable to license lands converted to lease.  An existing                 
  feature of the lease program  specifies an annual rental  of                 
  $1.00 an acre  at the time of  the lease sale.   That amount                 
  increases in  50-cent increments to a maximum of $3.00 after                 
  five years.   Lease  terms are  generally ten  years on  the                 
  North Slope and seven years in Cook Inlet.                                   
  Speaking to the  public notice amendment, Mr.  Boyd observed                 
  that the public  notice process of  Title 38 is  one of  the                 
  important features of  the proposed legislation.   While all                 
  the features of Title 38 are  present, the amendment at Page                 
  8, Line 7, provides for public notice of the  commissioner's                 
  Senator Sharp asked if regulations would allow for licensing                 
  of 20,000 acre tracts  or would they be written  to restrict                 
  the size to  100,000 acres of  more.  Mr. Boyd  acknowledged                 
  that regulations could  restrict the size.  He further noted                 
  that  the  Commissioner   has  the  right  to   "reject  any                 
  application . . ."   Senator Sharp voiced concern  that many                 
  do  not  consider  the   20,000-acre  threshold  a  nuisance                 
  limitation.   He suggested that  a licensing program  with a                 
  minimum size that is  four or five times larger  than tracts                 
  in the existing lease program could be used "against smaller                 
  developers" the state should be encouraging.                                 
  Senator  Sharp  next   asked  if   staking  of  claims   for                 
  exploration and development  of minerals other than  oil and                 
  gas would be allowed in license  areas while licenses are in                 
  effect.  Mr. Boyd responded affirmatively.  He also  pointed                 
  to existing statutory restrictions  prohibiting unreasonable                 
  interference with the operator.  Most restrictions relate to                 
  safety.    All surface  rights  are reserved,  and navigable                 
  waters are never to be blocked.                                              
  Senator Kerttula asked if the licensee would incur liability                 
  similar to  that of a  private property holder.   Department                 
  staff responded that  "Anything over which the  operator had                 
  jurisdiction would be  subject to liability."   The operator                 
  would not be  responsible for  things beyond the  operator's                 
  Senator Sharp again expressed concern that regulations might                 
  establish minimums and parameters  that would be prohibitive                 
  to  some  operators.    Mr.  Boyd  voiced  his  belief  that                 
  regulations would fairly implement language in  the proposed                 
  bill.  He reiterated that the program would not apply to the                 
  North Slope and  Cook Inlet.   The program  is thus  removed                 
  from areas with existing infrastructure.  It is difficult to                 
  imagine conduct of operations on a  very small tract of land                 
  in  interior   basins.     The  cost   of  construction   of                 
  infrastructure  for a small discovery in  a small area would                 
  be prohibitive.                                                              
  Discussion  followed  between  Mr.  Boyd  and  Senator Sharp                 
  regarding  the administration's  effort to  seek alternative                 
  energy sources for small villages  through small gas fields,                 
  etc.  The Senator remarked that the proposed bill appears to                 
  present an excellent  opportunity for that effort.   He then                 
  questioned  whether  the  effort would  be  feasible  with a                 
  minimum threshold of 20,000 acres  and a multimillion dollar                 
  work commitment  for exploration.   Mr.  Boyd stressed  that                 
  "There is no  minimum dollar  commitment, except what  would                 
  make sense."   There is  no particular relationship  between                 
  the  number  of acres  and  the  dollar amount  of  the work                 
  commitment.  The  proposed bill would not  preclude attempts                 
  to find a gas source for  a remote village.  Mr. Boyd  noted                 
  that  the  legislation  would  only  apply  to  state  land.                 
  Federal  and Native  lands  fall outside  its  jurisdiction.                 
  Further,  the state  lease-sale program  is also  available.                 
  Senator Sharp again  voiced concern  that the program  would                 
  favor larger companies  over smaller  operations.  Mr.  Boyd                 
  told members  that both the  proposed bill and  the existing                 
  lease program "accommodate anybody that wants to play."                      
  Co-chair Frank referenced language  at Page 9, Lines 12  and                 
  13,  and  noted  ability  of   the  Commissioner  to  reduce                 
  royalties to 5% where  it appears to be in the  state's best                 
  interest to do so in unproven areas.  He then questioned the                 
  wisdom  of  that   provision.    Mr.  Boyd   explained  that                 
  questioned language reflects existing law.   Co-chair Pearce                 
  added  that  it has  never  been  used.   Mr.  Boyd directed                 
  attention to language at Page 8,  Lines 16 and 27, and noted                 
  that  leases must  be conditioned upon  a royalty  amount or                 
  value of not less than 12.5% of production.  Co-chair Pearce                 
  asked  that Mr.  Boyd  review the  background  of the  12.5%                 
  royalty set forth in the leasing program.  She noted that it                 
  appears to be  in conflict with  a possible incentive for  a                 
  lowered royalty in the proposed bill.                                        
  Co-chair  Frank   voiced  his   understanding  that   Native                 
  corporations  have allowed  exploration licensing  on Native                 
  lands,  but oil  companies have not  taken advantage  of the                 
  arrangement.    Mr.  Boyd advised  that,  to  his knowledge,                 
  Native corporations do not  have a formal program.   He said                 
  that "They take  an area, and they  make a deal."   A formal                 
  procedure must be in place for public land.                                  
  Co-chair  Frank  next   asked  that  Mr.  Boyd   respond  to                 
  assertions that the proposed program  would end up with much                 
  public land being tied up in license arrangements.  Mr. Boyd                 
  stressed that the land has  been unexplored or underexplored                 
  for many years.  The proposed bill promotes exploration.  He                 
  stressed that exploration with a bonded work commitment does                 
  not amount to "locking anything up or giving anything away."                 
  Senator  Sharp voiced  his understanding  that the  proposed                 
  bill provides for exploration only.   No production would be                 
  allowed.  Mr. Boyd acknowledged  that production would occur                 
  under lease.                                                                 
  Co-chair Pearce advised  that the meeting would  be recessed                 
  at this time and possibly reconvened later in the afternoon.                 
  The meeting was recessed at 11:10 a.m.                                       

Document Name Date/Time Subjects