Legislature(2011 - 2012)BUTROVICH 205
01/28/2011 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
January 28, 2011
3:31 p.m.
MEMBERS PRESENT
Senator Joe Paskvan, Co-Chair
Senator Thomas Wagoner, Co-Chair
Senator Bill Wielechowski, Vice Chair - via teleconference
Senator Lesil McGuire
Senator Hollis French
Senator Gary Stevens
MEMBERS ABSENT
Senator Bert Stedman
OTHER LEGISLATORS PRESENT
Senator Fred Dyson
Senator Cathy Giessel
Senator Joe Thomas
COMMITTEE CALENDAR
Presentation: Kevin Banks, Director, Division of Oil And Gas,
Department Of Natural Resources (DNR)
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
KEVIN BANKS, Director
Division of Oil and Gas
Department of Natural Resources (DNR)
Anchorage, AK
POSITION STATEMENT: Presented an overview of his division.
SENATOR FRED DYSON
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Asked oil and gas questions relative to Mr.
Banks' presentation.
ACTION NARRATIVE
3:31:05 PM
CO-CHAIR WAGONER called the Senate Resources Standing Committee
meeting to order at 3:31 p.m. Present at the call to order were
Senators French, McGuire, Co-Chair Paskvan and Co-Chair Wagoner.
Presentation: Kevin Banks, Director, Division of Oil and Gas,
Department of Natural Resources (DNR)
3:31:38 PM
KEVIN BANKS, Director, Division of Oil and Gas, Department of
Natural Resources (DNR), presented an overview of his division
He stated that in 2010, the Division started to develop a
strategic plan. They have ninety staff, and they need to act
consciously and make sure appropriate people have vetted
important decisions and reached a consensus. At the same time,
he noted, they must be conscious of the impact of their
decisions on revenue and development.
3:34:35 PM
SENATOR GIESSEL arrived at the meeting.
MR. BANKS pointed out that the division is told what it needs to
do by statute, and makes decisions that affect the whole state.
He said they want to maximize development of resources for the
greatest benefit of all Alaskans, and the economically efficient
recovery of resources; the Conservation Division, on the other
hand, seeks to develop resources with the least surface
disruption.
CO-CHAIR PASKVAN asked about interplay of the two.
MR. BANKS answered that normally units are formed to assure
maximum recovery of the resource. He stated he must assure
facilities are used efficiently, and must also look at plans of
operation. He noted that if you thought of the state as a
producer, it would be number four as a royalty producer.
3:37:22 PM
MR. BANKS said the Petroleum Systems Integrity Office (PSIO) was
added to the division and relies on it for internet technology
and administrative support, but has its own budget. He said that
it may be considered an added layer of regulatory impact, but it
tells oil companies what they are capable of - and responsible
for - developing resources safely.
3:40:14 PM
SENATOR STEVENS joined the committee.
3:40:52 PM
SENATOR WIELECHOWSKI joined the meeting via teleconference.
MR. BANKS explained the division's workflow design.
3:41:54 PM
CO-CHAIR PASKVAN asked when he anticipated the final strategic
plan would be released.
3:42:59 PM
MR. BANKS responded that when the new commissioner completes his
transition, a document should be available. He explained that
resource evaluation completed a Cook Inlet gas supply study last
December, which only covers existing fields. The study examines
the potential for additional gas from the existing fields, and
will reveal how much it would cost to develop those fields.
MR. BANKS explained that once resources have been identified,
the leasing staff begins the process of making those lands
available in a bonus bid auction as required by law. The process
includes development of a best interest finding, a complicated
document. He noted the division holds leases sales two times a
year.
3:45:45 PM
SENATOR DYSON asked if the state's jurisdiction starts at the
offshore islands in the Beaufort Sea or from the existing
changing coastline.
MR. BANKS answered the islands count, and sometimes the coast
does, depending on whether the islands are submerged or not.
SENATOR DYSON asked if we have a contest with the federal
government over that.
MR. BANKS replied there's always potential for disagreement, but
he wouldn't anticipate it becoming a serious problem. Part of
the North Star unit is in federal land, and the division is in
intense discussion with the developer and the federal government
about that.
3:48:33 PM
MR. BANKS said that the royalty accounting staff has created an
electronic filing process, and most lessees pay online. The
division is able to validate those revenues in an audited form.
3:49:06 PM
CO-CHAIR PASKVAN asked about the recent Department of Revenue
(DOR) report concerning the need for a central data base to
analyze capital expenditure monies. He asked if the division's
system is different.
MR. BANKS replied their system is different because the
Department of Revenue has to track costs and the DNR does not;
instead, the DNR is interested in leases and calculation of
royalty. They manage for ownership issues and assign ownership.
3:51:27 PM
He stated the division's staff audits state and federal royalty
by arrangement, and that audit claims in the amount of $33
million are currently outstanding.
CO-CHAIR PASKVAN asked, in trying to understand the distinction
between DOR and DNR and ACES audits, how current is DNR?
MR. BANKS replied that the division's audits aren't going as
fast as he would like them to. They have been in the state of
catch up for quite a while; there is some potential for shared
information between DNR and DOR, particularly measuring
production data. As the automation of those systems improves,
they will automatically share that information.
3:54:39 PM
CO-CHAIR PASKVAN asked what audits typically show.
MR. BANKS answered that in most cases they are auditing for
increased value in royalty, although sometimes they identify
problems with the way 20-year old agreements are working.
3:56:10 PM
He then explained that the Gap analysis is designed to find
where the state has overlap in upstream issues. It is largely
complete, and there is a list of corrective actions that has
been submitted to the Natural Resources, Department of Law
Subcabinet. The subcabinet is preparing recommendations for the
governor.
CO-CHAIR PASKVAN asked what is meant by "integrity events."
MR. BANKS answered that integrity events typically occur because
some corrosion inspection is missing in the management plans of
companies operating the equipment. The division is seeking the
root causes of integrity events; they get phone calls from
employees working for the companies, raising concerns. The
department looks at the concerns.
CO-CHAIR PASKVAN asked what has been the success of an employee
calling in.
MR. BANKS answered they haven't had a lot of valid calls, but
enough to raise issues. It is usually enough to discuss with the
operator. Often an employee will see something; for instance,
people were concerned that Exxon was taking equipment away from
Point Thomson. But they discovered that was not the case.
4:00:26 PM
CO-CHAIR PASKVAN asked how aware employees are of a number to
contact.
MR. BANKS said the division has it on their website, but
probably it's not widely known.
4:02:23 PM
SENATOR DYSON asked about drilling for hydrates and new
technology.
MR. BANKS explained that hydrates are highly experimental. No
one has effectively figured out how to produce them. A test
conducted in Canada lasted six days; hydrates form in an ice
crystal cage (methane molecule) at a specific range of pressure
and temperature. On the North Slope, those pressures and
temperatures form at a very shallow level, below the existing
infrastructure. The USGS has estimated 85 trillion cubic feet of
technically recoverable gas from hydrates in the area around the
existing infrastructure. They have known that hydrates are a
drilling hazard, which also could provide a method of recovering
hydrates; as wells are drilled through the hydrates, the methane
is released and could cause hydrate gas to be kicked into the
well. This occurs when the drilling muds are too warm and heat
up the area around the well, or when pressure is relieved from
the well. A third technique being studied is to inject co2 into
a well to displace the methane molecules.
4:05:53 PM
MR. BANKS further stated the USGS is proposing drilling a well
at Prudhoe Bay to try some new techniques.
SENATOR DYSON asked how deep those wells would be.
MR. BANKS said he wanted to get a better answer, but he thought
about five thousand feet.
4:07:11 PM
SENATOR FRENCH asked what is happening with heavy oil production
on the North Slope.
MR. BANKS answered that heavy oil has been produced for some
time, mostly at Milne Point, using pumps at the bottom of the
wells. The issue has been how to get production without a lot of
sand. They have been producing oil from Schrader Bluff for the
last ten years, and West Sak is another source of heavy oil from
the same structure.
He also noted that BP is experimenting with a CHOPs heavy oil
producing system where they will produce the sand and remove it
at the surface. It's very expensive, but is a tremendously
prolific resource.
SENATOR FRENCH asked how far along it is. Is it permitted?
MR. BANKS answered yes.
4:10:02 PM
SENATOR WIELECHOWSKI asked about the Cook Inlet time table for
production.
MR. BANKS said he didn't have an estimate off-hand for oil
production, but the division has an estimate of gas potential in
Cook Inlet; numbers are not in the trillions. The USGS is about
to complete a resource assessment of Cook Inlet that will go
after a more sophisticated estimate for undiscovered technically
recoverable resource. He believes there are reserves of 1
trillion to 3 trillion cubic feet of gas in undiscovered
resources.
4:12:57 PM
SENATOR WIELECHOWSKI asked how many acres are leased by the
North Slope in Cook Inlet that are not currently being
developed, and do we have tools to estimate rates of return on
those fields under a different tax structure.
MR. BANKS said that is a difficult question, and he would
respond to it later.
SENATOR WIELECHOWSKI said he heard from various producers and
explorers that they would develop more fields with a change in
tax structure.
4:15:48 PM
SENATOR MCGUIRE asked Mr. Banks to comment on North Slope shale.
MR. BANKS replied that it is definitely worth paying attention
to.
CO-CHAIR PASKVAN said they are hoping to have a presentation on
shale oil in 3-4 weeks.
SENATOR FRENCH asked for an update on ConocoPhillips getting the
permit for crossing the Coleville River.
MR. BANKS answered that higher-ups in the Corps have remanded
the decision to revisit their previous decision. There was
concern about burying a pipe rather than letting it cross over
the river, and ConocoPhillips is still waiting for a decision.
SENATOR FRENCH asked if the long-time future development of NPRA
demands a bridge at some point.
MR. BANKS answered he couldn't agree more; three quarters of gas
is in the Arctic and a crossing is essential.
4:21:48 PM
SENATOR FRENCH noted that sometimes the public has
misconceptions on how ACES applies to different sections of
land.
MR. BANKS responded that the tax system applies to on-shore
federal land, including NPRA. Alaska shares in royalties from
the NPRA, but those revenues are dedicated by the federal
government to local impact funding. The current status of ANWR
is that the state would receive ninety percent of the royalties
from development of ANWR. In attempts to gain approval to open
ANWR, our delegation has been willing to accept fifty percent,
but that hasn't happened. The OCS provides a minimal share of
royalty sharing.
4:24:27 PM
SENATOR DYSON noted that onshore states in the Gulf of Mexico
have negotiated with the federal government to get more revenues
because of onshore impacts. Would those negotiations include us?
MR. BANKS said they would not.
4:25:39 PM
CO-CHAIR PASKVAN asked if Mr. Banks could review commercial
achievements in 2010, such as completion of a study on the
impact of shale gas on gas pricing in the lower 48, and other
items.
MR. BANKS stated that preliminary economic studies for a bullet
line are being conducted with a fresh look at costs from the
Alaskan Development Corporation. Shale gas prices and impacts
work was conducted by Black and Veatch, and that study is
available on the DNR website. Completion of regulations
governing calculation of royalty value, and implementing the
aspects of AGIA that called for calculating how royalty in kind
and royalty in value would be calculated, is not complete.
CO-CHAIR PASKVAN asked if those were the regulations that assume
a coupled tax structure for oil and gas.
MR. BANKS said it simplified the calculation.
4:30:43 PM
CO-CHAIR PASKVAN said when it comes to audits, the proposed tax
bill shortens the statute of limitations and asked what the
oldest data is that has not yet been audited.
MR. BANKS replied that the state is losing royalty revenue as
they speak - every month, as it slips off the six-year statute
of limitations. Several audits should have been done, but were
not.
SENATOR DYSON asked how close the Anchorage area got several
weeks ago to not having enough gas pressure to run their power
plants.
MR. BANKS responded that MLP was the one company that had
trouble, and they fired up their diesel plant; the other
utilities could be supplied from other sources.
4:32:38 PM
SENATOR DYSON asked if it was lack of gas or a problem with the
distribution system.
MR. BANKS replied that it was a question of who owned the gas
supply and who was obligated to deliver it. He noted that the
players play well together - getting gas to where it needs to
be, and then working the details out later.
SENATOR DYSON asked if there was enough gas to supply the region
physically.
MR. BANKS answered that there was enough gas, but it was an
ownership issue.
CO-CHAIR WAGONER thanked Mr. Banks and finding no further
business to come before the committee, adjourned the meeting at
4:35 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SRES DOG presentation 1-28-11 KRB.pdf |
SRES 1/28/2011 3:30:00 PM |