Legislature(2003 - 2004)

05/18/2003 10:43 AM Senate RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                          May 18, 2003                                                                                          
                           10:43 a.m.                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Scott Ogan, Chair                                                                                                       
Senator Thomas Wagoner, Vice Chair                                                                                              
Senator Fred Dyson                                                                                                              
Senator Ben Stevens                                                                                                             
Senator Kim Elton                                                                                                               
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Ralph Seekins                                                                                                           
Senator Georgianna Lincoln                                                                                                      
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 283                                                                                                              
"An Act relating to limitations on coal leases."                                                                                
     SCHEDULED BUT NOT HEARD                                                                                                    
                                                                                                                                
CS FOR HOUSE BILL NO. 246(RES)(title am)                                                                                        
"An Act relating to certain  audits regarding oil and gas royalty                                                               
and  net   profits,  to  audits   regarding  costs   relating  to                                                               
exploration  incentive  credits  and   oil  and  gas  exploration                                                               
licenses, and to  the limitation on upland acreage  that a person                                                               
may take or  hold under oil and gas leases;  and providing for an                                                               
effective date."                                                                                                                
     MOVED SCS CSHB 246(RES) OUT OF COMMITTEE                                                                                   
                                                                                                                                
CS FOR HOUSE BILL NO. 24(JUD)                                                                                                   
"An  Act  relating  to   intergovernmental  agreements  with  the                                                               
federal government  regarding management of  fish or game  in the                                                               
state."                                                                                                                         
     SCHEDULED BUT NOT HEARD                                                                                                    
                                                                                                                                
SENATE BILL NO. 172                                                                                                             
"An  Act relating  to the  limitation  on upland  acreage that  a                                                               
person may take  or hold under oil and gas  leases; and providing                                                               
for an effective date."                                                                                                         
     SCHEDULED BUT NOT HEARD                                                                                                    
                                                                                                                                
PREVIOUS ACTION                                                                                                               
                                                                                                                                
HB 246 - No previous action to record.                                                                                          
                                                                                                                                
HB 283 - Se Resources minutes dated 5/16/03.                                                                                    
                                                                                                                                
HB 24 - See State Affairs minutes dated 5/17/03.                                                                                
                                                                                                                                
SB 172 - See Resources minutes dated 5/16/02.                                                                                   
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Mr. Sean Parnell                                                                                                                
Conoco-Phillips Alaska, Inc.                                                                                                    
P.O. Box 100360                                                                                                                 
Anchorage, Alaska 99510                                                                                                         
POSITION STATEMENT: Opposed to audit transfer provision in CSHB
246(RES)(title am)                                                                                                              
                                                                                                                                
Mr. Mark Myers, Director                                                                                                        
Division of Oil and Gas                                                                                                         
Department of Natural Resources                                                                                                 
550 W. 7th Ave. Ste 800                                                                                                         
Anchorage AK 99501-3560                                                                                                         
POSITION STATEMENT:  Supports SCS CSHB 246(RES)                                                                               
                                                                                                                                
Ms. Bonnie Robson                                                                                                               
Deputy Director                                                                                                                 
Division of Oil and Gas                                                                                                         
Department of Natural Resources                                                                                                 
550 W. 7th Ave. Ste 800                                                                                                         
Anchorage AK 99501-3560                                                                                                         
POSITION STATEMENT:  Answered questions about SCS CSHB 246(RES)                                                               
                                                                                                                                
ACTION NARRATIVE                                                                                                              
TAPE 03-48, SIDE A                                                                                                            
                                                                                                                                
                                                                                                                                
VICE-CHAIR  TOM  WAGONER  called the  Senate  Resources  Standing                                                             
Committee meeting to  order at 10:43 a.m.  Senators Dyson, Elton,                                                               
and   Stevens  were   present.   The  committee   took  up   CSHB
246(RES)(title am).                                                                                                             
                                                                                                                                
   CSHB 246(RES)(title am)-OIL & GAS AUDITS & ACREAGE LIMITS                                                                
                                                                                                                                
VICE-CHAIR WAGONER informed members that a proposed committee                                                                   
substitute [Version I] was before the committee and that the two                                                                
amendments incorporated  into the committee substitute  (CS) were                                                               
in members' packets.                                                                                                            
                                                                                                                                
SENATOR DYSON  moved to adopt the  proposed committee substitute,                                                               
Version I, as the working document before the committee.                                                                        
                                                                                                                                
VICE-CHAIR  WAGONER  noted  that without  objection,  the  motion                                                               
carried. He  then informed members  that their packets  contain a                                                               
new zero fiscal note. He asked Mr. Myers to testify.                                                                            
                                                                                                                                
MR.  MARK  MYERS,  Director  of  the Division  of  Oil  and  Gas,                                                               
Department  of  Natural  Resources  (DNR),  explained  the  first                                                               
change  to  the  CS  is  on  page 4,  line  10,  where  the  word                                                               
"Meridian"  was eliminated.  That term  was used  to describe  an                                                               
east-west baseline  that separates  the North  Slope oil  and gas                                                               
provinces  where the  North  Slope areawide  sales  stop and  the                                                               
foothill sales begin. The correct  term is the "Umiak Basin." The                                                               
second  change clarifies  the misdemeanor  fees in  Section H  on                                                               
page 3, line 4, if  confidential information is released. He said                                                               
the new language is more  up-to-date and was recommended by Chair                                                               
Ogan. The Division supports that language.                                                                                      
                                                                                                                                
SENATOR DYSON  asked Mr. Myers  to describe the new  penalties in                                                               
the CS.                                                                                                                         
                                                                                                                                
MR. MYERS replied $10,000 and one year in prison.                                                                               
                                                                                                                                
SENATOR DYSON  said if a  person steals  confidential information                                                               
and disseminates  it to  an interested  party, the  economic gain                                                               
could be huge. He questioned whether  a $10,000 fine is enough of                                                               
a deterrent.                                                                                                                    
                                                                                                                                
MR. MYERS said he believes the  key is the 1-year prison term. He                                                               
said  the  $10,000  fine  is  standard  for  anyone  who  misuses                                                               
confidential information.                                                                                                       
                                                                                                                                
SENATOR DYSON asked if the crime is a felony.                                                                                   
                                                                                                                                
MR. MYERS  said it is a  class A misdemeanor. He  noted that this                                                               
legislation  makes no  changes  in  that arena  -  it adopts  the                                                               
existing standard in current law for such crimes.                                                                               
                                                                                                                                
SENATOR DYSON said his guess is  if the crime was classified as a                                                               
felony, most offenses would get pleaded out to a misdemeanor.                                                                   
                                                                                                                                
VICE-CHAIR WAGONER asked Mr. Parnell to testify.                                                                                
                                                                                                                                
MR.  SEAN   PARNELL,  representing  Conoco-Phillips,   said  that                                                               
members'  packets contain  a letter  of support  from Rick  Mott,                                                               
Vice President of Exploration, but  due to the amendments made in                                                               
the House that  pertain to the transfer of the  audit function to                                                               
DNR,  Conoco-Phillips  can no  longer  support  the bill  in  its                                                               
current  form. He  said the  original bill  pertained to  acreage                                                               
expansion from 500,000  to 750,000 acres. The  amendments made in                                                               
the House give audit and subpoena powers to DNR.                                                                                
                                                                                                                                
MR. PARNELL told members that  Conoco-Phillips is concerned about                                                               
the  new arrangement  for two  reasons. First,  giving DNR  these                                                               
powers creates an  inherent conflict of interest. DNR  is a party                                                               
to  a lease  so  giving  DNR those  powers  essentially gives  it                                                               
police power  over the lease  when it  has other remedies  in the                                                               
contract.  Conoco-Phillips  believes those  powers  appropriately                                                               
rest  with the  Department  of  Revenue. Conoco-Phillips'  second                                                               
concern is  that it believes  those powers would  be duplicative.                                                               
Conoco-Phillips   would  have   to   respond   to  requests   for                                                               
information  from  both  DNR  and DOR  when  the  information  is                                                               
available through  DOR. Finally,  the amendments that  were added                                                               
have  nothing to  do  with  acreage limitations.  Conoco-Phillips                                                               
would like the  legislature to return to the  original version of                                                               
HB 246  but retain Sections  5 and 10.  He noted that  Sections 5                                                               
and 10 are the acreage limitation provisions.                                                                                   
                                                                                                                                
SENATOR DYSON asked  if DOR already has the power  to subpoena an                                                               
audit.                                                                                                                          
                                                                                                                                
MR.  PARNELL said  that  is correct  and that  is  what is  being                                                               
deleted on  page 1,  lines 7  and 8. He  clarified that  power is                                                               
part of AS 38.05.036.                                                                                                           
                                                                                                                                
SENATOR DYSON asked  the departments to comment  on Mr. Parnell's                                                               
request.                                                                                                                        
                                                                                                                                
MR. MYERS  said he would  comment but  turn the question  over to                                                               
Bonnie Robson.  He said the bill,  as it stands, is  supported by                                                               
DNR,  the  Administration, the  Governor  and  DOR. It  does  not                                                               
change  authority; it  merely uses  the  existing authority  more                                                               
efficiently.                                                                                                                    
                                                                                                                                
MR.  BONNIE ROBSON,  Deputy Director,  Division of  Oil and  Gas,                                                               
DNR, said,  in response to  the two  points made by  Mr. Parnell,                                                               
the  powers that  will  rest with  DNR to  conduct  the audit  of                                                               
royalty matters were  with DNR prior to 1980.   At that time, the                                                               
law  was changed  to  move the  audit function  from  DNR to  DOR                                                               
because of perceived  efficiencies. It was believed  that tax and                                                               
royalty   audits   could   be  conducted   simultaneously.   This                                                               
legislation  simply  provides DNR  with  the  audit authority  it                                                               
previously had.                                                                                                                 
                                                                                                                                
MS.  ROBSON  said Mr.  Parnell's  second  concern was  that  this                                                               
change will  result in duplicative  action. She said  the initial                                                               
assignment of  royalty audits  to DOR  in 1980  was done  for the                                                               
purpose  of eliminating  duplication of  royalty and  tax audits,                                                               
with the  belief they  could be  done simultaneously.  They never                                                               
have  occurred   simultaneously.  Changes  in  tax   schemes  and                                                               
settlements have  diverged over time  so, as a  practical matter,                                                               
the  perceived efficiencies  of  a single  agency conducting  the                                                               
audits  have  not resulted.  In  fact,  inefficiencies have  been                                                               
created because  what is first  audited by  DOR must then  be re-                                                               
examined  by DNR  in  light of  DNR's  administration of  royalty                                                               
issues. She said  DNR has not received all of  the information it                                                               
needs from DOR.                                                                                                                 
                                                                                                                                
SENATOR DYSON asked Mr. Parnell if he wanted to respond.                                                                        
                                                                                                                                
MR. PARNELL replied, "No thank you. I think it's all been said."                                                                
                                                                                                                                
SENATOR DYSON announced a brief at-ease.                                                                                        
                                                                                                                                
CHAIR OGAN  reconvened the  meeting at 10:57  a.m. and  noted the                                                               
presence of Senators Elton, Dyson, Stevens and himself.                                                                         
                                                                                                                                
SENATOR  BEN STEVENS  moved SCS  CSHB 246(RES)  [Version I]  from                                                               
committee  with  individual   recommendations  and  its  attached                                                               
fiscal note.                                                                                                                    
                                                                                                                                
CHAIR OGAN announced that without objection, the motion carried.                                                                
He then called an at-ease.                                                                                                      

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