SB 185-ROYALTY REDUCTION ON CERTAIN OIL/TAX CRED  CHAIR OGAN asked Mr. Gary Carlson to testify. MR. GARY CARLSON, Senior Vice President of Forest Oil Corporation, a major investor in Cook Inlet over the past five years, read the following testimony. My testimony on SB 185 will focus on the maintenance of critical and scarce infrastructure associated with mature oil fields in the Cook Inlet. The platforms, associated pipelines, and related onshore facilities represent irreplaceable infrastructure, which may facilitate the exploration, discovery and development of as yet undiscovered reserves if their useful lives could be extended. Any delay in abandoning or decommissioning of this infrastructure will provide opportunities to the industry to develop smaller scale oil and gas prospects that won't stand the economics if new infrastructure needs to be developed. As the mature fields approach the economic life, the operators need to get creative and manage costs carefully, which includes changing the way they operate. They need the cooperation of their vendors and contractors to share these efforts. I believe it is appropriate for the state to step in as a partner also. This bill provides a way for the state to make a difference. Keeping the Cook Inlet oil fields on line a few more years will maintain good jobs, provide local taxes, and the possibility of new development that could easily exceed any anticipated shortfall in the state revenues resulting from reducing the state's royalty. I want to commend the bill sponsors and the Department of Natural Resources for their foresight in supporting this bill and I want to thank the committee for their opportunity to provide this testimony on this legislation. Thank you. SENATOR WAGONER said he campaigned on this issue. He asked Mr. Carlson to expand on what losing the platforms could mean to the economy. MR. CARLSON said as an independent explorer in Cook Inlet, Forest Oil looked at all of the infrastructure there and found it is critical to developing any new prospects to be able to access that infrastructure. The mood of the operators in Cook Inlet has changed; there is now cooperation among competitors. Keeping the pipelines available and providing access to onshore and offshore facilities is critical for some of the small projects. CHAIR OGAN asked Mr. Carlson if he is familiar with the areas [named in Section 1 of the bill] in which the royalty reduction will be allowed: Dolly, Grayling, King Salmon, Steelhead, and Monopod. MR. CARLSON said he is. CHAIR OGAN asked if the royalty reduction will take place if [production] drops below 1200. MR. CARLSON said that is correct. CHAIR OGAN asked Mr. Carlson if he is aware of the current production levels of those wells. MR. CARLSON said he is not but he would guess the well closest to 1200 is Steelhead and that the range goes up to 4,000 or 5,000 barrels per day. CHAIR OGAN asked which platforms Forest Oil owns an interest in. MR. CARLSON said Forest Oil has an interest in the Steelhead, Dolly Varden, King Salmon, Grayling, and Monopod platforms. CHAIR OGAN asked if Forest Oil has a sole or joint interest. MR. CARLSON said Unocal is the operator and majority owner and Forest Oil owns approximately 47 percent of those facilities. CHAIR OGAN asked how many platforms in Cook Inlet this legislation does not apply to. MR. CARLSON said five other platforms and one small onshore field are not under secondary recovery. The operating costs are not as high. CHAIR OGAN asked Mr. Myers to provide the committee with a map of the leases in Cook Inlet. MR. MYERS agreed to do so. SENATOR LINCOLN noted the sponsor statement says the intent of SB 185 is to encourage production in the marginal fields. She asked Mr. Carlson if he believes the legislation will do that. MR. CARLSON said he thinks it could encourage putting off decommissioning those facilities for one to three years, depending upon the decline rate of the field itself, until they are uneconomical to operate. As an independent operator, it is critical to Forest Oil that the infrastructure remains. The development of one new field would far offset any small reduction in royalty to the state. SENATOR LINCOLN asked what percent of Forest Oil's hire is out- of-state. MR. CARLSON said all Forest Oil employees are residents. SENATOR WAGONER added that Union Oil has very few, if any, out- of-state employees that work in Cook Inlet. CHAIR OGAN thanked all participants and recessed the meeting to the call of the chair at 5:37 p.m.