Legislature(1997 - 1998)
02/24/1997 03:44 PM Senate RES
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
JOINT SENATE/HOUSE RESOURCES COMMITTEE
February 24, 1997
3:44 P.M.
SENATE MEMBERS PRESENT
Senator Rick Halford, Chairman
Senator Lyda Green, Vice Chairman
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 Bill Williams
Representative Reggie Joule
HOUSE MEMBERS ABSENT
Representataive Beverly Masek
Representative Joe Green
COMMITTEE CALENDAR
Oil Industry Progress Report
- Mr. George From, Manager - Materials, Purchasing &
Contracts, ARCO
- Mr. Eric Luttrell, Vice President, BP Exploration, Inc.
- Mr. Dwight Perkins, Special Assistant, Department of Labor
- Mr. Chris Miller, Research and Analysis, Department of Labor
ACTION NARRATIVE
TAPE 97-13, SIDE A
Number 001
CHAIRMAN HALFORD called the Joint Senate/House Resources Committee
meeting to order at 3:44 p.m. and said the Committee would receive
a progress report on legislation passed last session with regard to
Northstar and Badami and general comments about where we are on
local hire and construction.
MR. GEORGE FROM, ARCO, said they discovered, along with its
partners Anadarko and Union Texas Petroleum, 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 is 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 Kuparek Fields. Peak production is estimated at 60,000 barrels
per day. Development of this project is estimated at $700 - $800
million, 30% less than traditional North Star 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% 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,
directionally 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 200
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 gas or
electricity to the village and jobs and offering matching
scholarship funds to the residents.
MR. FROM reviewed the permit status and said that they had started
this process a number of years ago 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 if Michael Baker and Tri-Ocean were outside
companies. MR. FROM answered yes, but he thought that Michael
Baker had been here for some time.
Number 270
REPRESENTATIVE BARNES asked if the ASRC/Parsons Engineering Ltd.
was also an outside company joint venturing with ASRC. MR. FROM
replied yes. She asked if Michael Baker has an office in Alaska
with a business license. MR. FROM answered yes. She asked if Tri-
Ocean Engineering was in Canada. MR. FROM answered yes.
MR. FROM said their purchasing strategy is to build the Alpine
project in Alaska. He said 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 which will include
service, quality, and the willingness to meet their project goals
as well as cost. He said they would utilize their current ARCO
Alaska supplier agreements both for identifying the 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 that 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, approximate 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 if 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 364
SENATOR LINCOLN asked why he added "where possible" to mitigating
the impacts on Nuiqsut. MR. FROM explained that they are building
on gravel places along the Colville River and that's "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 if 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 HUDSON asked if 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 him to bring to the committee a breakdown of
the approximate $1 billion in State and local revenues in terms of
what sources it comes through.
SENATOR SHARP asked him to provide them with a map of the private
and State ownership pattern within the area that is going to be
explored.
REPRESENTATIVE BARNES said since we know that Alpine is next to the
National Petroleum Reserve and since the State of Alaska gets none
of the funds - the 50% goes to the native villages - how was 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
MR. ERIC LUTTRELL, BP Alaska, said this report is pre-lawsuit and
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
the costs have subsequently gone up.
One of their statutory requirements was to sanction Northstar by
May of 1997 and they did acquire funding in October 1996 and
expected first oil to come mid-1999. The second was to report
quarterly on Alaskan residencies and hiring statistics which they
have sent to the Department of Labor recently. Thirdly, he
reported the supplement royalty at the current price would be 26.41
% which is more than twice the average royalty on the North Slope.
MR. LUTTRELL 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 about $225 million in
Alaska. He reviewed a pie graph of the Alaskan content of the
project.
CHAIRMAN HALFORD asked what was vessel fabrication. MR. LUTTRELL
replied that in order to separate oil and gas you need to build
very large vessels which are big tanks with valves and other things
attached to them. It's 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 and he reviewed the current status with the committee
saying that they deferred fabrication on 2/13/97. The consequence
is that they will delay the sea-lift which they intended 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 if there was 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's appealed, would they wait for the appeal to be
decided before there's action. MR. LUTTRELL said they will make
decisions as they go along.
TAPE 97-13, SIDE B
MR. LUTTRELL answered a question from Representative Hudson saying
that they had deferred their position in line for things like
compressors and turbines. REPRESENTATIVE HUDSON asked if 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 if 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 they will scale back up when they are in the position to
go forward.
BP is going forward on Badami, he said. 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 - equal parts in Alaska and Canada. He said
they are spending a total of $14 million in Canada.
REPRESENTATIVE DYSON asked whereabouts in Canada would the
fabrication 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 490
SENATOR LINCOLN asked if 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 that 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 LEMAN asked if the engineering portion being done in Canada
was primarily associated with the fabrication that is being done in
Canada or was there 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 if
they were working with any Alaskan engineering companies to. 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 if it was true when that firm was
selected with all their expert arctic experience that they proposed
drilling an underwater line which didn't work and now they have to
go over-ground. MR. LUTTRELL responded that the original
conceptual work did identify the possibility of burying a line, but
as they worked on it in more detail with all the firms, they came
to the conclusion that was probably not the best or cheapest way
and they now have an above-ground line.
Number 464
MR. DWIGHT PERKINS, Special Assistant, 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. MR. CHRIS MILLER, Research and Analysis,
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, any studies they've done, any notes they
have done on the study, and anything related to the question of his
report. In addition, she wanted to know if we had 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 any 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 TAYLOR asked which of the 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 of the companies that advocated very strongly for Alaskan
hire have some of the highest numbers for non-resident employees.
He asked if 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 non-resident 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 JOULE said his experience is that companies keep the
same employees from contract to contract for job security.
Number 245
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 non-Alaskans residents
to become residents. MR. MILLER responded that in the permanent
fund information they have looked at they have found 14% of the
folks they have determined to be non-residents 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 asked how much material was it that Representative Barnes 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 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, etc.
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 NICHOLIA asked if 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 that 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.
Number 9
CHAIRMAN HALFORD said they await their responses and adjourned the
meeting at 5:15 p.m.
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