HB 223-NATURAL GAS PIPELINE INCENTIVE/ GAS TAX 9:33:08 AM CHAIR WEYHRAUCH announced that the final order of business would be HOUSE BILL NO. 223, "An Act levying a tax on certain known resources of natural gas, conditionally repealing the levy of that tax, and authorizing a credit for payments of that tax against amounts due under the oil and gas properties production (severance) tax if requirements relating to the sale and delivery of the natural gas are met; and providing for an effective date." 9:33:32 AM WALTER J. HICKEL, former governor of Alaska, commended Representatives Eric Croft and Harry Crawford for authorizing the initiative [HB 223] that is forcing Alaska to look at a reserve tax on Alaska's natural resources of the North Slope. He related his belief that this legislation is absolutely necessary and not a new concept. He recalled his time as former United States Secretary of Interior in the late 1960's when he was responsible for America's energy policy. He related that in most cases, if an exploration company could not prove within five years that it had adequately searched for resources, or failed to produce those resources, its lease would expire. When oil was discovered in Alaska's North Slope, this requirement was not included in early leases; however, it was implied and expected that if resources were found, they would be marketed. MR. HICKEL then referred to E.L. "Bob" Bartlett's 1955 speech to the Alaska Constitutional Convention in which he addressed the danger of Alaska's natural resources being exploited as well as the danger of postponing the development of those resources until such time as outside interests see fit. [A copy of Mr. Bartlett's speech is included in the committee packet.] However, the state owns the North Slope and merely leases the oil and gas resources with the expectation of development for the maximum benefit of Alaskans. With regard to last week's Anchorage Daily News article that characterized the reserves tax as punishing the producers, Mr. Hickel related his belief that such is the consequence for keeping what may be over $1 trillion worth of [the state's] resources off the market for the benefit of stockholders. MR. HICKEL opined that the North Slope's natural gas is the state's legacy resource. He further opined that if natural gas was transported and processed in Alaska, it has the potential to provide well-paid jobs in the state for generations. "The proposed $1 billion a year penalty should be a minimum," he said. He added that the only reason there is controversy surrounding this is the undue influence of oil and gas producers in the state's governmental process. MR. HICKEL then turned to HB 223 and highlighted his understanding that the producers merely have to build a pipeline to avoid the penalty. The fastest way to start a pipeline is to build the All-Alaska line. Mr. Hickel concluded by urging the committee's support of HB 223 in a ballot initiative or to craft stronger legislation, either of which would demonstrate the legislature's pledge to uphold the Alaska State Constitution. 9:39:23 AM MR. HICKEL, in response to Representative Rokeberg, recalled his part in getting the pipeline built. He then emphasized the need for Alaska to act as an owner state. In fact, he opined that the state should build the [natural] gas pipeline and own it. 9:45:10 AM REPRESENTATIVE WEYHRAUCH proceeded to announce the next witness to testify on HB 223. 9:45:17 AM MARK MYERS, drawing on his experience as former director, Division of Oil & Gas, Department of Natural Resources (DNR), explained that he was testifying at the request of the sponsor of HB 223 to address the economics of a gas pipeline project. He said his preference would be for the companies and the state to honor the terms of the leases and the plans of development for the fields. However, if the administration fails to enforce the lease requirements after companies fail to act on them, then it's worthy to discuss what other mechanisms are available. As indicated earlier, one of the key questions is: what are the economics of the gas pipeline. He opined that the gas pipeline is economic. In fact, a report done by Econ One Research, Inc. for the Alaska State Legislative Budget & Audit Committee on August 31, 2005, [a copy of the report is included in the committee packet] illustrates that the gas pipeline is economic in a number of ways. MR. MYERS, in summarizing some of the key points in the report, noted the project is very economical at gas prices north of $4.00/million British thermal units (mmbtu), and the market and companies are predicting $7.00 to $8.00/mmbtu gas prices in general. Typical project risks, such as low gas prices and inadequate reserves, are not an issue, he noted. Mr. Myers reviewed the various scenarios given by Econ One Research, Inc, all of which illustrate that the project is economic. He then referenced Figure 8-3, which illustrates that earlier production of the gas pipeline versus later production is more economical for the state. 9:57:34 AM CHAIR WEYHRAUCH announced that further questions for Mr. Myers regarding his testimony may be addressed at the January 18, 2006, meeting. [HB 223 was held over.]