Legislature(2021 - 2022)BUTROVICH 205
01/27/2021 03:30 PM Senate RESOURCES
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| Start | |
| Introductions | |
| Overview: Department of Natural Resources | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
January 27, 2021
3:31 p.m.
MEMBERS PRESENT
Senator Joshua Revak, Chair
Senator Peter Micciche, Vice Chair
Senator Click Bishop
Senator Gary Stevens
Senator Natasha von Imhof
Senator Jesse Kiehl
Senator Scott Kawasaki
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Senator Roger Holland
COMMITTEE CALENDAR
OVERVIEW: DEPARTMENT OF NATURAL RESOURCES
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
CORRI FEIGE, Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Provided a departmental overview of North
Slope oil and gas, and the recent actions taken by the federal
government.
JUSTIN BLACK, Deputy Commissioner
Division of Oil and Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Provided a lease sales and activity update
for the North Slope.
ACTION NARRATIVE
3:31:58 PM
CHAIR JOSHUA REVAK called the Senate Resources Standing
Committee meeting to order at 3:31 p.m. Present at the call to
order were Senators Bishop, Stevens, Kiehl, Kawasaki, and Chair
Revak. Senator Micciche joined the meeting shortly thereafter.
^Introductions
Introductions
3:32:24 PM
CHAIR REVAK welcomed committee members to the first hearing of
the Senate Resources Standing Committee of the 32nd Alaska State
Legislature. He said he was honored that his colleagues selected
him to chair the committee and he looked forward to exploring
programs and activities of the departments.
CHAIR REVAK said while Alaska has challenges to address
considering the new federal administrative orders, he looked
forward to exploring solutions and working collaboratively with
all committee members to find pathways to better success, better
access, responsible management, and development of the state's
resources to the benefit of all Alaskans.
He asked the committee members to introduce themselves and their
committee staff if they would like to.
3:33:26 PM
SENATOR KIEHL said he was pleased to have the legislature back
in Alaska's capital. He noted his committee aide was Edric
Carrillo.
SENATOR BISHOP congratulated his committee member colleagues and
recognized his committee aide, Cody Grussendorf.
SENATOR MICCICHE stated he looked forward to the many issues
that the committee would face.
He noted the [oil and gas industry] sent hundreds of Alaskans
home from work last week, many from his district. He said there
is a middle ground that can be a right answer even when there is
a Democratic administration, and his hope is we find that
balance because what we are looking at is scary for the people
of Alaska.
SENATOR MICCICHE said he is looking forward to working on those
issues with committee members, the issues include fishing,
mining, oil and gas, land use, and fish and game.
SENATOR STEVENS noted his pleasure to be on the committee and
working with the members. He said his committee aide is Tim
Lamkin.
He stated his major interestin addition to everything the
committee is dealing withis fisheries issues, an important part
of the state's economy. Issues include a terrible time in the
pollock fisheryone of the greatest fisheries in the world and
biggest producer of protein. The biggest [processing] plant in
Alaska at Akutan closed due to COVID-19 and two or three others
are facing that as well.
3:35:59 PM
SENATOR KAWASAKI said he represents Interior Alaska and the City
of Fairbanks. He said his staff and intern members for the
committee includes Robin ODonoghue and Max Robicheaux.
CHAIR REVAK introduced his committee aide, Betty Tangeman, and
his chief of staff, Dirk Craft.
^OVERVIEW: Department of Natural Resources
OVERVIEW: Department of Natural Resources
3:37:11 PM
CHAIR REVAK announced the purpose of the meeting is to hear an
overview from the Department of Natural Resources regarding
areas of concern.
3:38:26 PM
CORRI FEIGE, Commissioner, Department of Natural Resources,
Anchorage, Alaska, said 2020 was a year of unprecedented
volatility in oil markets and production levels across the
globe. The pandemic has driven the oil price collapse,
prorationing of North Slope throughput into the Trans-Alaska
Pipeline System (TAPS), and production curtailments due to very
low-price environments.
She said Alaska now finds itself in early 2021 in a period of
modest recovery and a bit of stability that shows North Slope
oil production holding at just under 500,000 barrels per day
with pricing stable in the mid-$50 range.
3:40:03 PM
COMMISSIONER FEIGE explained slide 2 charts out the impacts from
COVID-19 through November 2020. The slide shows the volatility
in both price and production. In April 2020, oil prices hit a
low of $16.50 per barrel on [Alaska North Slope] (ANS) crude.
Prices dropped nearly 75 percent between January-April 2020.
She explained companies immediately launched into production
curtailment and TAPS prorated throughput in order compensate for
lack of storage capacity at the Valdez Marine Terminal. Sixty
thousand barrels a day came out of the Kuparuk River production
in June; 40,000 barrels a day curtailed from the Colville River
unit production in June; the Badami unit shut in 1,500 barrels a
day in Mayonly to come back online in October. Thankfully, both
the Colville River Unit and Kuparuk Unit were able to restore
full production in July 2020.
She noted the Cook Inlet throughputlocal refinery market and
not TAPShas not come back in line and that totals about 1,900
barrels per day between the West Macarthur River Unit and the
Redoubt Unit, which had reached their economic limit with the
COVID-19 conditions.
She said the laydown of the infill-drilling programs experienced
from the result of COVID-19, the chart in slide 2 shows the
curtailment of production in June and the rebound in July.
However, the curtailment of the infill drilling experienced
during the past year is going to make itself known in production
for the next couple of years to come because the infill wells
drilled today impact production in the near-term years.
3:42:33 PM
She referenced slide 3 on what companies have done to manage the
COVID-19 impacts. There were rig laydowns across the North
Slope, BlueCrest in Cook Inlet curtailed and postponed their
natural gas exploration project until 2022, and prorationing
resulted in rate drawbacks in TAPS; all these saw Alaska's oil
and gas industry and operations cutback from full production and
exploration capacity to barebones-minimum personnel in the
course of about 10 days. However, where the stabilized system
finds itself today is amazing when considering the incredible
shock that occurred.
She said DNR and the Division of Oil and Gas took some very
specific steps to stabilize the industry over the last year. For
example, the department and division added 30 days to the lease
award schedule for the fall 2019 North Slope lease sale and the
spring 2020 Cook Inlet lease sale, that allowed the companies
and lessees to better manage their cashflows and allowed the
State to continue to capture acreage under lease and not see
those acres go unleased and put off until the future.
COMMISSIONER FEIGE noted the department and division also
granted extension requests on lease rental payments and
deadlines for submitting things like plans of development data
and other paperwork due to distributed workforce due to the
difficulty in maintaining a business pace during COVID-19.
She pointed out even during the magnitude of the shock from
COVID-19, Alaska's operations continued without any
environmental, operational, or significant safety upset.
Companies have managed to keep their workforces healthier than
originally thought possible.
3:45:06 PM
SENATOR STEVENS noted the commissioner called the first two
slides "Managing COVID-19 Impacts," and the committee sees the
results of the changes that occurred. He asked her if she
attributes all the changes to COVID-19.
COMMISSIONER FEIGE answered yes. She said everything the
committee is seeing from her overview is a direct result of the
COVID-19 impact on the workforce and the industry.
SENATOR STEVENS commented a piece is missing on exactly what
happened. He asked her to provide specific information on why it
all occurred, what happened to all the jobs, etcetera.
COMMISSIONER FEIGE asked if the department could work with the
senator's office to clarify exactly what to quantify. The
department has statistics in its overview on the barrels and
throughput removed, and the implications. However, the overview
does not have specific jobs information, but she is happy to
provide those statistics.
3:46:49 PM
SENATOR MICCICHE noted the missing piece in the overview is the
demand decline. He stated Senator Stevens is probably asking why
oil backed up on the North Slope and why was production cut. He
asked her to talk about the demand decline that caused the
entire supply chain to back up. He said, "It wasn't the disease,
it was the reduction in activity in the Lower 48."
COMMISSIONER FEIGE thanked the senator for his clarification and
said he is right. At the peak of the pandemic response, the
reduction in global demand resulted in approximately 20 million
barrels a day of global demand taken out of the market, the
equivalence of the entire United States' daily production. The
upstream impact resulted in filling up the United States' West
Coast and Gulf Coast storage. No storage space resulted in oil
curtailed all the way back to the wellhead to literally store
oil in the reservoir.
She noted there were discussions facilitated by U.S. Senator
Sullivan with the U.S. Department of Energy about opening empty
strategic petroleum reservoir space around the country for
storage to stabilize domestic oil prices, but thankfully that
did not occur. However, that discussion might live on in the
years to come to stabilize the overall industry picture.
She said current global demand has resulted in 50 percent of
production bouncing back. However, there will be some demand
variance as the disease manifests in China and Africa. The
system itself is rather brittle but taking a 20 million barrel a
day hit out of global demand is a massive shock to system that
precipitated the changes presented in the department's graphs.
3:49:44 PM
She referenced slide 4 and noted North Slope production accounts
for 98 percent of all oil production in Alaska. She remarked
even with the COVID-19 response and the global decline in
demand, 2020 will stand as a testament to durability of Alaska's
operations because between FY2016-FY2020, oil production only
averaged a one percent decline in production. The optimizations
put into place during those years were in part what allowed for
the rebound to a period of stability much more rapidly than what
otherwise what would have occurred.
She explained some of the major changes that occurred in
Alaska's North Slope production profile includes the transfer of
all of BP's assets in June 2020 to the new owner, Hilcorp.
Hilcorp immediately as the new operator at the Prudhoe Bay Unit,
deployed some strong production optimization and cost cutting
efforts, that helped as prices began to decline.
She said [ConocoPhillips] did a fantastic job with cost control
and cashflow management with their curtailments at the Kuparuk
and Colville River units to come back to full production in July
2020.
COMMISSIONER FEIGE detailed Hilcorp's Milne Point Unit actually
grew production by 28 percent between FY2019-FY2020, and in just
the year prior to that had grown production by an additional 14
percent. Hilcorp has a spectacular level of investment and
optimization going on at the Milne Point Unit that has
contributed to stability and increased production in that field.
She said the Point Thomson Unitoperated by [ExxonMobil Alaska]
has progressively improved their facility reliability through
new investment in new compressor designs and new approach in how
they manage the extremely high pressure at the Point Thomson
field. That has allowed them to stabilize production at some of
the highest levels the department has seen since that field has
come online in 2016.
3:52:16 PM
She noted there are some exciting near-term projects over the
course of the next couple of years that will bring additional
production into TAPS.
She detailed there is expansion drilling at GMT2 within the
[National Petroleum Reserve Area (NPRA)], the department will be
watching that for any potential impacts from the incoming
administration's policies.
She said there is the CD5 Expansion and the Fiord West
developments in the Colville River Unit. The Colville River
Unit operates on jointly managed land between the State and the
[Arctic Slope Regional Corporation] (ASRC).
She noted Hilcorp has their Raven Pad development slated for the
Milne Point Unit.
She said projects farther out include the Pikka Unitowned by
Oil Search and Repsolwhich is aiming to enter its [Front-End
Engineering Design (FEED)] phase by the end of 2021.
[ConocoPhillips] is moving the Willow Projectalso in the NPRA
towards FEED with a final investment decision by end of 2021.
The department is also watching the Willow Project very closely
for any potential impacts due to the incoming policies.
3:53:28 PM
CHAIR REVAK asked her how some of the orders from the President
and the order from the [Secretary of the United States
Department of Interior]Order No. 3352might threaten any of the
projects and in what ways is the department prepared to deal
with that.
COMMISSIONER FEIGE replied the department is closely monitoring
both GMT2 and the Willow Project development. The industry has
said they have the needed permits in hand. GMT2 is an
established development and is currently drilling. The Willow
development has the needed permits for construction operations
and material sites development for this winter.
She said likely impacts from the Biden administration's policies
will be in how the companies can secure future permits. There
could potentially be delays and a slow rolling of the process.
The Willow Project currently has development litigation that
could affect the record of decision with its work plan.
She reiterated the State is watching these programs closely. The
State has intervened in litigation to ensure it has a seat and
voice at the table. The developments are on federal lands and
the State takes a bit of a support role in seeing the
developments come to pass. However, the State will leverage
everything at its disposal to ensure protection for the State's
interests and the projects continue to move forward.
3:55:26 PM
SENATOR MICCICHE said he finds the reduction in the production
decline interesting over the last four years even with some of
the price challenges. The decline was 6.0 percent for quite some
time and then it went down a little lower to 3.5-4.0 percent. He
asked her what she attributes the reduction to a one percent
decline and is that something that can turn around with better
economics in Pikka and Willow.
COMMISSIONER FEIGE explained the North Slope optimization
campaigns in the facilities and production operations has almost
entirely driven that one percent decline. The step up in infill-
drilling campaigns up until the COVID-19 curtailment last year
was moving along at a lovely clip. The department anticipates a
rebound, especially with stable prices.
She said the department is encouraged by new seismic data that
BP acquired for the Prudhoe Unit just before its sale to
Hilcorp. The data is generating some exciting targets for new
oil accumulations that Hilcorp is feeling very bullish about
being able to go after.
She stated new production in the mid-2020s from developments
like Pikka and Willow will certainly help to offset decline
provided they stay on schedule and not impacted dramatically by
the Biden administration. Mature North Slope fields: Kuparuk,
Colville River, and Prudhoe have a natural average decline rate
of 4-6 percent. Any new production that comes online will be
coming on to offset that.
COMMISSIONER FEIGE said she believes an important shift will
occur towards state lands exploration and development over the
next four years. The shift means very good things for the
discovery rate.
She added a steady discovery rate of over 90 percent has
occurred since 2013-2014 on the central North Slope. The
discoveries are related to the Nanushuk and Torok Formations,
specifically in the Brookian plate type, which is the Nanushuk,
the Pikka development location. The department sees a growing
focus on that over the next four years due to federal acreage
uncertainties.
3:58:31 PM
SENATOR MICCICHE noted she is being careful on probably the
primary reason why the state is seeing additional investment. He
asked her if the same choices within NPRA would have occurred
for investment, optimization, additional exploration, and all
the activity had the tax structure been dramatically different.
COMMISSIONER FEIGE replied she does not believe the investment
would have been the same had there been a tax structure change.
Industry directly told the department that they were making
investment decisions because dollars invested in Alaska are in
competition with dollars spent in other basins and other places
around the world. Every policy matters in the current market and
in the current market climate.
She noted in the current climate with the curtailment of shale
and the instability in federal acreage across the west in the
Lower 48, the stage is set for an opportunity for Alaska because
investment dollars will look for a place to go. The department
has seen a rebalancing of the portfolios, investment houses, and
in oil sector companies who are looking for less high decline
shale resources and putting a greater focus back to longer
duration, more stable, high level production of conventional
assets.
She said she thinks that if the State does its job right in
getting the word out about Alaska being open for business,
having a stable environment in which to operate with a durable
and predictable permitting process, etcetera, then the State
stands to capture a fair bit of that "otherwise capital" looking
for a home.
4:00:38 PM
CHAIR REVAK welcomed Senator von Imhof to the committee meeting.
He asked if she would like to introduce her staff.
SENATOR VON IMHOF introduced her staff member, Shareen Crosby.
COMMISSIONER FEIGE announced Mr. Black, Deputy Director for the
Division of Oil and Gas, will address recent lease sales results
and an activity update for the North Slope.
4:01:30 PM
JUSTIN BLACK, Deputy Commissioner, Division of Oil and Gas,
Department of Natural Resources, Anchorage, Alaska, referenced
slide 5 and noted an overview map with figures from the
division's January 13, 2021 lease sales.
He said the promising lease sales resulted in a little over $7
million for the state via 115 track leases. There are five
different companies that are apparent high bidders, some are
familiar, and one is a new entrant into Alaska, Arctic Circle
Exploration, LLC. He detailed the lease sales as follows:
• Arctic Circle Exploration, LLC
o Picked up a conglomeration of leases south of Prudhoe
Bay.
• Great Bear Petroleum Ventures II, LLC
o Acquired some offset lease acreage to their recently
formed the Talitha Unit.
o Encouraging to see they want to expand their holdings
around their current footprint.
• Hilcorp North Slope, LLC
o Entity that operates Prudhoe Bay for Hilcorp.
o Acquired three tracks to the north of the unit
adjacent to the unit.
• Lagniappe Alaska, LLC
o Acquired additional acreage south of the Badami Unit
alongside some existing lease holdings that they have.
• Oil Search (Alaska), LLC
o Acquired some infill acreage and some offset acreage
near their holdings to the west.
He explained the division held the lease sale in January 2021 in
part because of the COVID-19 impacts that Commissioner Feige
mentioned earlier. With some of the deferrals given to the
industry in making payments, allowing additional time for rental
payments or leases surrenders for inclusion in the lease sale
proved to be successful.
4:03:53 PM
MR. BLACK addressed slide 6 and highlighted a North Slope oil
and gas activity map for the current winter as follows:
• Talitha Unit
o Operated by Great Bear Pantheon, has spudded the
Talitha A well this winter
o The unit received approval and financing in fall 2020
to drill during the current winter
o The division is anticipating and hoping for strong
results from Great Bear Pantheon
• Alkaid Unit
o Operated by Great Bear Pantheon, located adjacent to
the Talitha Unit
o Well drilled at the location several years ago
o More exploration and development activities will be
occurring over the next couple of years
• Accumulate Energy Alaska (AEA)
o Merlin and Harrier wells
square4 Merlin well anticipated to receive permit from
the federal government
square4 There is hope for the additional Harrier well
this winter
• Milne Point Unit
o Operated by Hilcorp
o 17 wells and 20 workover wells for the current [plan
of development] (POD) period which is phenomenal work
as Commissioner Feige mentionedthe 14 percent and 28
percent increase in production over the last few years
o Hilcorp is doing a lot of great work
4:06:08 PM
He addressed longer term projects that are still on the activity
horizon as follows:
• West Harrison Bay Unit
o Operated by [Shell Offshore, Inc. (Shell)]
o Division approved the unit in fall 2020
o Division excited to have discussions with Shell and
view their plans for the unit
o Over the next several years there should be a well
planned in the unit
• Oil Search and Repsol
o Proceeding with a phase-development approach in the
Pikka Unit
o A lot of activity going on in terms of building
infrastructure
o Hope is to see a lot of development drilling over the
next few years
• Badami Unit
o Operated by [Savant Alaska]
o Located towards Point Thomson
o Production restored in October 2020 after a shut down
for months
• Hilcorp
o Taken over operatorship at Prudhoe Bay
MR. BLACK said the division is very pleased to see the level of
activity. Some might think with all the curtailments that
perhaps it was a slow year for the division, but the division
has seen a tremendous amount of activity.
He noted the division is partnering with industry, but the
division has its regulatory hat for the benefit of all Alaskans.
The division wants to see the development but done in a
responsible way. There are a lot of promising things to come
this winter and over the next several years.
4:08:13 PM
SENATOR BISHOP asked Mr. Black to clarify that his reference to
POD is about plan of development.
MR. BLACK answered yes.
CHAIR REVAK noted he mentioned the expectation for permits in
the NPRA are coming soon. He asked him if he sees the permits
being in jeopardy from the recent orders.
MR. BLACK answered Accumulate Energy Alaska (AEA) recently
released a press release that they are receiving their permit
needed for their Merlin well, anticipated by tomorrow, January
28, 2021. The permit is still unsure, but that is what they
indicated in their press release. They had a pause on their
trading in Australia's stock exchange, but with their press
release they were able to resume trading.
4:09:29 PM
COMMISSIONER FEIGE referenced slide 7 and noted royalty rates
vary across state and federal lands on the North Slope.
She detailed with state lands, state royalty rates are either
12.50 percent or 16.67 percent. The state's royalty share is
either 83 percentin jointly managed lands with ASRC in the
Colville River unit in a portion of Pikkaor it is 100 percent
of the royalty take on just straight on-state lands.
She explained for offshore: 0-3 miles outthat is for state
submerged lands in state watersthe state receives 100 percent
of the royalty at a rate of 16.67 percent; 3-6 miles out, the
state receives 27 percent in the split with the federal
government; beyond 6 miles out, the state receives nothing, it
is federal waters.
She explained in the NPRA, the royalty rate is either 12.5
percent or 16.67 percent. However, while the state has a 50
percent royalty split that includes rents and bonus payments in
addition to royalty, those revenues do not go directly to either
the Permanent Fund or the General Fund. The funds go into the
Impact Mitigation Grant Fund, established many years ago to help
offset NPRA oil development impacts to North Slope communities.
She detailed for the 1002 Area within the Arctic National
Wildlife Refuge (ANWR) coastal plain, the state will receive 50
percent of the royalties, rents, and bonuses from the leases
sales on January 6. The royalty rate for those leases is 16.67
percent.
4:11:37 PM
SENATOR MICCICHE asked if the department has thought about
reviving the effort for an agreement on a better mix on the
submerged lands beyond 3 miles, similar to what happened in the
[Gulf of Mexico] a few years back.
COMMISSIONER FEIGE answered yes, there is certainly interest in
changing that split rate. The department, as well as the
[Alaska] congressional delegation, have investigated engagement
with the [National Outer Continental Shelf (OCS) Leasing
Program]. That conversation will depend upon how the Biden
administration chooses to approach offshore leasing.
SENATOR MICCICHE commented if they are going to compromise
Alaska's ability to develop due to their new policies, perhaps
they will see somewhat of an exchange for what is already under
production. He said he hopes the policies he previously spoke
about do not continue. However, if the policies continue, Alaska
needs to try to expand its rights on submerged lands and OCS
lands. He said that would be a minimum expectation considering
that Alaska will have worse results from those new policies than
any other state.
4:13:22 PM
COMMISSIONER FEIGE agreed and said perhaps that becomes a
bargaining chip at some point for something like a Liberty
development once there is a clearer picture of the legal
situation with that development.
She detailed slide 8 shows the FY2020 restricted and
unrestricted petroleum revenue sources from the North Slope.
Unrestricted fund sources include royalties and taxes. The tax
side includes production tax and petroleum property tax. FY2020
unrestricted revenues brought in just over $1 billion.
She noted the restricted fund side includes revenues that go to
the Alaska Permanent Fund, the split that goes to the [Alaska
Public School Trust Fund], and those monies that come in from
any tax or royalty settlements and go directly to the
Constitutional Budget Reserve as well as funds that come into
the Impact Mitigation Grant Fund for NPRA, those totaled $620
million. The year-on [revenue] total was $1.7 billion.
SENATOR KIEHL noted tax and royalty settlements to the budget
reserve fund are significantly higher than they have been in
several years. He asked her if there are new types of settlement
cases for something that has been lingering for a while.
COMMISSIONER FEIGE explained the department has been diligently
working for the last 18 months or so at settling long standing
appeals and disputes, particularly around royalty audits. Also,
the Department of Revenue has focused on settling long standing
appeals related to tax settlements. Slide 8 reflects in large
part the clean-up done around taking care of and resolving with
BP all their outstanding tax and royalty disputes prior to their
exit from the state.
4:16:19 PM
She noted slide 9 shows petroleum revenue for both restricted
and unrestricted types of funds by year. The slide provides a
lookback to FY2017 and roughly provides a five-year window as
well as a forecast from the Revenue Sources Book for what the
department believes FY2021 and FY2022 may look like.
COMMISSIONER FEIGE noted the department's forecast for FY2021
and FY2022 has an ANS price in the mid-$40s, but current pricing
is a bit ahead of thatone thing to highlight. Current prices
could be on a bit of an upside in FY2021, but everyone will have
to see how the price performance goes for the rest of the year.
She pointed out flat or slightly increased barrel per day
production rates on the North Slope. Current production is just
below 500,000 barrels per day. From a price and production
standpoint, the North Slope is slightly ahead of the
department's forecast.
She said [slide 10] takes a close look at federal leases on the
North Slope. The NPRAidentified in tan and located on the left
slide of the sliderepresents roughly 2.6 million acres in 307
tracks currently under lease. In total, there is about 23
million acres in NPRA with large portions set aside for
environmental and wildlife protection. The map does not show an
area around Teshekpuk Lake and a large area north of the
Colville River in the southwest portion, off the left side of
the map.
She noted [North Slope Exploration, LLC], which is an affiliate
of [Armstrong Oil and Gas, Inc.], leases the acreage the
farthest to the west-designated in the sand color. Also, a small
company called [Borealis Alaska Oil, Inc.] has a few leases in
the middle portion that looks like a horseshoe.
COMMISSIONER FEIGE said [ConocoPhillips] has a very commanding
lease hold position on the eastern side of the NPRA leases.
Also, there are the Greater Mooses Tooth Unit development, the
Bear Tooth Unit development, the Willow Unit resides inside the
Bear Tooth Unit development, and the West Willow Unit sits just
outside to the west of the unit boundary.
She noted the [Alaska] Congressional Delegation was working
closely with Biden administration staff over the weekend to
explain impacts to [Project Peregrine]developed by AEA that Mr.
Black spoke about earlier. The administration has given their
authorizations to proceed and travel across federal lands for
purposes of mobilizing that program. The department is waiting
on the final paper to catch up with them, a standard operating
procedure for getting out and on the ground.
COMMISSIONER FEIGE said when the secretarial order came up on
January 20, 2021 and imposed the 60-day delay, it created a
pause for AEA. Based on information from the press and what was
publicly available, they expended about $3 million on that
program in terms of executing the rig contract and commencing
snow road and pad production for accessing. She noted she
personally has done a lot of work in that area, noting its
requirement for over 100 miles of snow road construction from
the Dalton Highway just to access that acreage, something that
takes a fair bit of lead time for mobilization.
COMMISSIONER FEIGE said the department is looking eagerly for
AEA to provide notification when they have received the final
authorizations from the administration. Taking 60 days out of a
program on Alaska's North Slope is equivalent to taking a year
because the area does not have the length of season to absorb 60
days like in the Lower 48. She said to Senator Micciche's
earlier point, the decisions like the one that came down from
the Biden administration disproportionally impacts the state and
the department will be watching very closely.
4:21:45 PM
She noted saying earlier in presentation the department
referenced drilling at Greater Mooses Tooth. They have permits
and authorizations in hand for that work. Similarly, the
department will closely monitor the initial construction phase
at Willow along with Peregrine.
COMMISSIONER FEIGE detailed Oil Search also holds a few tracks
just inside the NPRA boundarylocated where the Colville River
comes around and hooks up to the north and then goes straight
souththat is in the area of their new Horseshoe discovery. She
added they drilled a confirmation well, the [Stirrup Well].
4:22:41 PM
CHAIR REVAK announced Senator Holland was attending the meeting.
SENATOR VON IMHOF asked her to confirm that the tan horseshoe-
area shown on the slide, within NPRA, are already [federally]
leased, can move forward, and there should not be any political
roadblocks from the new Biden administration to take away,
stymie, or stop the leases.
COMMISSIONER FEIGE answered correct, the tan area is all leased
acreage with valid preexisting property rights that someone
cannot summarily do away with. However, there will be delays on
any exploration work on acreage that is subject to receipt of
federal permits. That is where the State is going to have to
work very closely with its federal partners in supporting
entities that wish to get out and explore that acreage.
SENATOR VON IMHOF asked her to confirm that the 60-day ice or
snow road she referenced earlier is an example of ways to stymie
a lease in terms of the permitting angle.
COMMISSIONER FEIGE answered correct. She noted under the Obama
Administration, permits took a little longer. For example,
authorizations did not occur as quickly or were possibly sent
back to Washington, DC for review as opposed to the local
office. The tempo of exploration will experience an impact.
4:25:01 PM
SENATOR BISHOP noted the capitalized dollars to do an ice road,
secure a rig, but then you have got a new administration with a
60-day full stop. He asked her if there is any recourse for the
people who are out cash at no fault of their own and is the
department and the [Alaska] delegation looking at avenues to
help these people out.
COMMISSIONER FEIGE answered yes. She reiterated if you hold a
lease, you have a valid preexisting property right. While policy
can be set with a stroke of a pen, the law is still the law and
you are do certain rights. If an agency's arbitrary actions harm
you, there is remedy and recourse.
She said the department is leaning heavily into understanding
how arbitrary actions or certain quick policy changes by an
incoming administration can adversely impact industry. The
situation is fluid, noting she will address executive orders and
secretarial orders later in her presentation.
SENATOR MICCICHE commented there are so many ways a new
administration could get in the way. He noted the commissioner
talked about dedicated guaranteed property rights through the
leasing system. However, there is no guarantee for production
techniques in those leases. There are a lot sneakier ways that
the new administration could really compromise project
economics. For example, not only via permitting but seismic
activity, hydraulic fracturing, and any chemical activity.
COMMISSIONER FEIGE replied correct.
SENATOR MICCICHE asked her if the department is evaluating what
the potential is for how the new administration's populist
actions on stemming hydrocarbons will affect the State of Alaska
and if there are other ways to possibly negotiate for production
on existing leases while awaiting the next two or four years.
COMMISSIONER FEIGE answered yes, the department is working with
its sister agency, the [Alaska Oil and Gas Conservation
Commission (AOGCC)], who has the authority over fracking. Alaska
has 40-plus years of fracking activity, a routine function in
the North Slope reservoirs. Alaska has the most stringent
fracking regulations than any place in the nation, noting AOGCC
updated the regulations in 2015. The department will be looking
to understand the potential impacts to any kind of sweeping
change.
She said she believes fracking is a matter of education
regarding basins in other parts of the country or the world, and
to help the administration and new agencies understand how
things are different in Alaska, both in management and
geological differences versus shale for example.
She noted the new administration has talked about wanting to
listen to the science. The department believes providing them
with the best available science on Alaska oil and gas operations
is germane to that conservation.
4:29:23 PM
SENATOR KAWASAKI addressed Senator von Imhof's question dealing
with permitting and noted a recent Reuters' article about how
even though there are the secretarial and executive orders,
there has been so many stockpiled permits that work can continue
within federal leases. He asked her if the same applies within
NPRA and ANWR.
COMMISSIONER FEIGE explained western states have shale
operations that have large banks of wells drilled but not
completed due to economics while waiting for the right price
structure, etcetera. Alaska does not have the same kind of
backlog of drilled and uncompleted wells, the state is
conventional oil and not shale.
She said the NPRA tends to go season to season. Just like state-
managed units, producers must submit regular plans of
development. At the federal level, those plans cover a five-year
period as opposed to just a one-year period. There is potential
to have a look ahead and have authorizations for work that might
take place over a five-year period, but Alaska certainly does
not have a stockpile of wells waiting for completions and
permits as in western states. Federal permits like state permits
have timeframes, typically three years. Western states could
have three-year moving windows of wells drilled yet uncompleted
that could be sitting on permit approvals.
4:31:43 PM
COMMISSIONER FEIGE said slides 11 and 12 go hand in hand. Slide
11 represents the tracks offered for the January 6, 2020 lease
sale for the [1002 Area] on the coastal plain. Potential lessees
bid on 11 tracks with 9 tracks taken under leaseillustrated in
the slide as colored tracks on the western side.
She noted the [Bureau of Land Management (BLM)] removed tracks
from the sale located in the southeast portion of the 1002 Area
shown as grey tracks in the slide. BLM received concerns during
their call for nominations period that the area was caribou
calving grounds as well as environmentally sensitive.
COMMISSIONER FEIGE detailed the bids received are colored blue
and brown on the map, plus there were bids received for tracks
22 and 23the department did not take the 2 bids under lease.
The State of Alaska receives 50 percent of the proceeds from
sales in the ANWR coastal plain. The total bid amount was just
over $14 million, and the State will bring in 60 percent of
that, just over $7.2 million.
She explained slide 12 shows an overlaid pink area that
represents the area identified by previous geologic work and
[two-dimensional] seismic run in the late '80s and early '90s.
The area represents with highest hydrocarbon potential within
the 1002 Area. The slide shows that the nine tracks taken under
lease represents the "guts" of the highest potential acreage
within the 1002 Area. All 9 leases have a 10-year primary term
that commenced upon signing, approximately on January 15, 2021.
4:34:06 PM
SENATOR BISHOP asked if track 29 is a disputed track with the
federal government that the State of Alaska has claimed as state
land, and what was the status on resolution.
COMMISSIONER FEIGE replied correct, track 29 is the disputed
acreage between the Canning River and the Staines River, which
is the ANWR boundary that the State has long disputed. The
track-29 acreage sat on appeal to the Interior Board of Land
Appeals (IBLA) within the [U.S. Department of Interior] for a
number of years until about two weeks before the announcement of
the January 6, 2021 sale. The IBLA ruled against the State and
contended that the acreage belongs to the federal government.
COMMISSIONER FEIGE noted the State disputes the IBLA decision
and can still pursue a court appeal. She said she believes the
State has a very compelling data set that shows a survey error
was made on the ground in the early '60s. She remarked if anyone
has ever been on the ground in that part of Alaska, knowing
where you actually are is very difficult.
She detailed that in advance of the sale, the State expressed to
BLM within the comments on the call for nominations that the
State still believes the track-29 acreage belongs to Alaska. The
State exercisedunder the [Alaska National Interest Lands
Conservation Act (ANILCA)]sent a [Section 906 (b)] letter that
puts BLM on notice that if the acreage is under lease, to hold
any revenues generated in escrow because at the time of
resolution the State will be due 90 percent of those revenues.
COMMISSIONER FEIGE said she believes the State has two years to
press the issue in court with IBLA's decision. The State is
presently contemplating how and when is the right time to go
about doing that in terms of the other federal litigation with
the [ANWR] coastal plain.
4:36:58 PM
SENATOR KIEHL asked her how the State will swing 90 percent of
the revenue on a parcel appeal win if the State otherwise gets
50 percent in the ANWR leases.
COMMISSIONER FEIGE explained if the State prevails, the State
will convert the track to a State lease and therefore receive 90
percent of all revenue collected by the federal government prior
to dispute resolution.
SENATOR MICCICHE noted when the State started the fight for
ANWR, it was not privy to the exciting geology in NPRA. He asked
her if the lack of interest in ANWR is due to a change in
administrationpolicy related and not party relatedor the
current commitment to moving north and west.
4:39:14 PM
COMMISSIONER FEIGE answered a little bit of "all of the above."
She noted another factor she believes at play were
[environmental non-governmental organizations (ENGOs)]
threatening companies in a campaign against anyone even
contemplating participating in an ANWR lease sale. People in the
oil and gas business are not weak kneed or risk adverse, but the
pressure was intense.
COMMISSIONER FEIGE said there was uncertainty around the
possibility of an incoming Biden administrationthat certainly
impacts NPRA as wellbut the uncertainty amplified and
heightened for the 1002 Area lease sale.
She noted her belief that the [Alaska Industrial Development and
Export Authority (AIDEA)] announcement to participate in the
sale changed industry behavior due to a State entity
participating. To avoid scrutiny, companies could wait to see
the leased acreage and then potentially deal with someone like
AIDEA at a later date.
4:42:15 PM
COMMISSIONER FEIGE referenced slide 13, Recent Federal Actions,
regarding Secretarial Order 3395: Temporary Suspension of
Delegated Authority, issued on January 20, 2021 by Acting
Secretary of the U.S. Department of Interior, Scott de la Vega.
She explained Secretarial Order 3395 instituted the 60-day
suspension on any authorization of any kind within the
department. The order addresses everything from actions on
resource management plans to anything published in the Federal
Register. A secretary or a director within a federal agency can
sign an action, but until the Federal Register publishes the
action, it does not take effect. The process is a bit of shift
between something signed but not effective until register
publication. However, the action acts as a placeholder that
holds everything in limbo.
COMMISSIONER FEIGE stated with the action, there are to be no
issuances of rights of way, leases, conveyances of land of any
kindimplications for Alaska with listing of public land orders
and the attachment of state select lands and the conveyance of
title on those lands. The action also impacts [Revised Statute
2477 (RS 2477)] mining plans of operations. The action really
was the "wholesale stop sign" for activity within the Department
of Interior, unless someone confirmed or acting in an official
position signed the authorization.
She said the action was the piece that impacted Project
Peregrine in NPRA and got the [Alaska] Congressional Delegation
engaged with the Biden administration last weekend. The order
and subsequent restrictions like itcould well prohibit
exploration activities within the 1002 Area or certainly areas
in NPRA outside of the existing producing units.
4:44:53 PM
COMMISSIONER FEIGE referenced slide 14, noting the President
issued Executive Order 13990 on January 25, 2021. The President
calls his order, Protecting Public Health and the Environment
and Restoring Science to Tackle the Climate Crisis.
COMMISSIONER FEIGE pointed out the order directs all agencies to
immediately review and take action to address any regulation or
other actions promulgated over the course of the Trump
administration that may conflict with the policy directions of
the Biden administration. Those policy initiatives within the
Biden administration primarily focus on climate change and the
climate crisis.
She said she thinks the greatest amount of discussionsomething
that the state is going to be paying extremely close attention
tois the discussion on listening to science. The question is
who gets to decide what the science is and what science is
robust enough.
COMMISSIONER FEIGE noted the [National Environmental Policy Act
(NEPA)] reviews require that all supportive data submitted in
the environmental information documents must derive from the
best available data. That scientific data must be meaningful to
the queried question. Scientific and technical data should be
robust, repeatable, and peer reviewed. Whether the new
administration applies that new bar in the years ahead is going
to be interesting to see because there are a lot of questions
that exist around climate science and the implications for or
impacts of greenhouse gas.
She added the other policy directives are to improve public
health, protect the environment, ensure access to clean air and
clean water, limit the exposure to dangerous chemicals and
pesticides, and hold polluters accountable. The new
administration also focuses on reduction of greenhouse gas
emissions, bolstering the resilience to climate change,
restoring and expanding national treasures and monuments, and
the prioritization of environmental justice.
4:47:29 PM
COMMISSIONER FEIGE noted today, the Biden administration issued
another executive order to address the reduction of greenhouse
gas emissions, the restoration of national treasures, as well as
an indefinite pause on new oil and gas leasing on federal lands.
The order talks about expanding national treasures and
monuments, and access to outdoor education by what they call,
Thirty Percent by 2030. That initiate seeks to protect or
conserve 30 percent of both the land and water in the country by
2030.
COMMISSIONER FEIGE said there will be a large push for
conservation initiatives, certainly in Alaska that could mean
large areas offshore tied up, drilling moratoriums, or leasing
moratoriums placed on those. That action raises questions for
the outer continental shelf leasing program, and the proposed
lease sale for Cook Inlet that is currently out for public
comment.
She added the executive order also specifies that [U.S.
Environmental Protection Agency (EPA)] regulations related to
the oil and natural gas sector address any emissionsmethane
venting or methane emissionswith some specific action taken by
September 2021. This really is the key area that could impact
Alaska's existing oil and gas operations because it is unknown
at this time how EPA's review of its regulations is going to
affect operations like air permits in the state for large oil
and gas operations on the North Slope or Cook Inlet. DEC will be
fully engaged because they administer the clear air program for
EPA in the state, so this falls squarely in their domain.
4:49:46 PM
COMMISSIONER FEIGE said slide 15 also addresses Executive Order
13990. She detailed the order also suspends the coastal plain
ANWR leasing program, but it has no affect on the existing
leases issued in January 2021 because those were preexisting
property right.
She detailed the order places a temporary moratorium on all
activities related to the implementation of the oil and gas
program. The Tax Act of 2017 mandated the program and subjected
to a national environmental policy act review, and the record of
decision was issued in August 2020.
COMMISSIONER FEIGE said the three bullets pointsnoted on the
slide under the suspension of the ANWR leasing programreally
speak to the Biden administration wanting to take a step back,
reevaluate the [ANWR] coastal plain oil and gas leasing program
as defined in the Tax Act of 2017, and instructs the secretary
to conduct a new environmental assessment and essentially issue
a new record of decision.
She noted the administration also instructed the attorney
general that he can alert the court that any pending litigation
related to the oil and gas program can receive requests for
stays dependent on reviews. There are currently four lawsuits in
which the State has intervened that are active around the
question of the ANWR oil and gas leasing program; this sort of
heralds the notion of sue-and-settle because if the State brings
a case forth and the existing administration has had a policy
change and does not necessarily disagree with the points brought
up in the suit, they can theoretically step aside and settle. If
the State has joined the suit, intervened in the suit, and the
federal government steps away, the State is still there to press
the case points in the complaint.
COMMISSIONER FEIGE explained the four suits filed on ANWR all
revolve around the sufficiency of the environmental review that
went into the August 2020 record of decision. The state is going
to see a tremendous amount of activity around a new record of
decision and around the litigation surrounding the existing oil
and gas lease program.
4:52:34 PM
She said what is concerning about the accounting for benefits of
reducing climate pollution is that the Biden administration is
creating new terms which currently have no definition: social
cost of carbon, and social cost of nitrous oxide and methane. At
the present time, the full cost of greenhouse gas emissions is
unknown, there is no metric or meter for measuring it, and there
are a whole lot of assumptions that goes into that. She said
that goes back to the question of listening to the science and
who decides what is science of a sufficient quality to answer
some of these questions.
COMMISSIONER FEIGE noted the Liberty development decision on the
North Slopeheld by Hilcorpsits on federal acreage. The [United
States Courts for the Ninth Circuit] just a few weeks ago issued
a decision that said the Bureau of Ocean Energy Management
(BOEM) had done an insufficient job of explaining why they
dismissed or did not fully develop the discussion around this
total cost or potential damages or impacts globally to
greenhouse gas emissions associated with the Liberty
development, and that shows a nexus now seen in the executive
order.
She reiterated the Liberty development issue relates to the
whole discussion on the impact, how to measure, and how to put a
monetary value to what those greenhouse emission impacts are
around the globe from a well drilled on the North Slope of
Alaska. The issue is difficult, but it has the potential to
"suck the air out of the room." The Biden administration is
going to establish a working group to help define its terms.
When the State has a better understanding of what the terms look
like, the State will look to find a way to be a stakeholder or a
cooperating agency in the process.
4:54:55 PM
COMMISSIONER FEIGE noted slides 16 and 17 provides reference for
what is next and what delay can mean coming through federal
actions. Slide 16 addresses how the stroke of a pen can set
policy priorities, but the changes of regulation, records of
decision, and any process takes more process at the federal
level.
She said seeing all the orders coming very fast is a bit
overwhelming. The department is still in the process of trying
to unpack and digest all the information, especially in what
they mean to Alaska and its operations.
COMMISSIONER FEIGE explained that any project which requires an
EPA authorizationwhich is any project that needs to go through
a national environmental policy act or NEPA review to get an
[Environmental Impact Statement (EIS)] or an [Environmental
Assessment (EA)]is certainly going to be subject to the
policies of the Biden administration.
She said there is the question whether an EIS or EA comes
quickly, slow rolled, or denied based upon some of the new
metrics and new science they want to fold in the process. Also,
there is the question for areas like Willow and [Greater Mooses
Tooth], and even the exploration acreage in NPRA and the [1002
Area] of ANWR on whether they will move quickly on permit
authorizations or slow roll those permit authorizations to draw
out the timeline in the process.
COMMISSIONER FEIGE stated where developments are concerned, time
is money. That is also an area where the State is going to have
to work very diligently with those federal agencies to continue
to impress upon them the importance to the state regarding the
material nature of TAPS throughput and the royalty impacts to
Alaska's North Slope communities through the Impact Mitigation
Grant Fund. There is a very real and very different impact from
slow rolling federal authorizations, especially within NPRA as
it comes to impacting the North Slope Borough and its
communities.
She said the department will be engaging in conversations with
the North Slope Borough through its [memo of understanding
(MOU)] with them to see what the department can do to support
them as well as continuing to advance the State's interest.
4:57:57 PM
CHAIR REVAK thanked the department for their overview. He said
the committee just scratched the surface and looks forward to
hearing more from the department.
4:58:48 PM
There being no further business to come before the committee,
Chair Revak adjourned the Senate Resources Standing Committee
meeting at 4:58 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SRES DOI 60 Order SO 3395 signed 1-20-21.pdf |
SRES 1/27/2021 3:30:00 PM |
|
| SRES EO 13990 Climate Crisis Fed Reg Copy 1-20-21.pdf |
SRES 1/27/2021 3:30:00 PM |
|
| SRES O&G Activities on Fed Land 1-27-21.pdf |
SRES 1/27/2021 3:30:00 PM |
|
| SRES NS O&G 1-27-21.pdf |
SRES 1/27/2021 3:30:00 PM |
SRES Overview |