SENATE BILL NO. 50: An Act making appropriations for capital projects; and providing for an effective date. Department of Natural Resources: NICO BUS, Chief, Financial Services, Department of Natural Resources, came before the committee to speak to three projects. The first project was the RS 2477 Assertion Project from the federal government in the amount of $720.0. He said it was not part of the original Governor's budget. The state has been informed that there is a deadline to present the recommendations for approximately 1,500 right- of-ways to the Congress by May 1. The $720.0 pays for the mapping and identification for this presentation in order for the state to receive title and ownership. Co-chair Pearce asked the difference between this request and the request in the original SB 50 from the Governor for $2,265.0 for owner state assertion and land selections. He said in the land selection capital project, $175.0 was included for the most critical right-of-ways. The department understood that would be all that was asked for and those would be used as test cases dealing with the federal government. Because of the time frame of the statue of limitations, the request was amended to include all right-of-ways. The next project was the Alaska North Slope Royalty Oil Price Reopeners for $100.0 enabling the state to discuss oil price and methodology with the large oil companies. It will buy expert advice on such things as transportation costs, capitalization, destination value, etc. It will be used as a contingency fund if there is a need for it. The last amended request was funding for the Alaska Oil & Gas Conservation Commission for $100.0 to evaluate the Alaska Prudhoe Bay Reservoir models that large oil companies have done. This is important for the state in order to maximize the production of oil and determining the most appropriate time for gas sales. The money will be used for consultants to evaluate the existing models. SENATOR TIM KELLY asked why the full time state consultants could not take on this project. Mr. Bus said that their time was already being taken up by North Slope work with the large oil companies to insuring production is up to standards. In answer to Senator Sharp, Mr. Bus explained that the Alaska Oil & Gas Conservation Commission's responsibility was to maximize existing reservoir analysis for the state to optimize production. The reservoir in the request is for future oil and gas explorations. Co-chair Pearce pointed out that their is a confidentiality issue that may be a problem if the commission was asked to share information. Co-chair Pearce asked how many models would be analyzed. Mr. Bus said that the oil companies are asserting that the most advantageous time to sell gas would be in the year 2000. This reservoir study would make an independent determination regarding the oil company's conclusion. RAGA ELIM, Special Assistant, Department of Natural Resources, said that there were three models by oil companies and the request would retain a consultant who would evaluate these existing models and provide an independent analysis of that information to help the state determine the appropriate time to shift to gas sales. SHELBY STASTNY, Director, Office of Management & Budget, said that the chairman of the commission had told him, because of the intense pressure to start gas sales and the oil companies reluctance to agree that it is not feasible for at least ten years, this independent study was needed to make a determination for the state. Co-chair Pearce said that the latest phase of the gas handling facility on the north slope was going on line this year. Since all the gas in Prudhoe Bay is being reinjected to help produce oil, she felt that the companies know what they are talking about and that they are using all the gas right now. She felt the state would lose some oil production if gas was sold off at the present time. She agreed that the state needed this information as a base for decision making. In answer to Senator Kelly, Mr. Elim said that there is one vacancy on the Alaska Oil & Gas Conservation Commission. Mr. Elim said that the vacancy must be filled by a public member. SENATOR STEVE RIEGER asked for an explanation regarding the difference between gas sales and reinjection. Mr. Elim said that the oil companies have given their time frame for optimum gas revenues to be between 2015 and 2030. There is increasing interest for potential gas sales. Given the time frame that the state is hearing from the oil industry, the state is asking for independent information to find out if that information is accurate. Senator Rieger said that he would like to know what the dynamics would be to cause the interests of the state to diverge from the oil companies. Mr. Stastny said that according to Harold Hines, special assistant to oil & gas commission in the Governor's office, when gas sales do begin it will be around $300-500 million of revenue a year. It seemed that the oil companies may not have that same interest since they have a pipeline of oil and have enough gas to satisfy customers from other sources. So he could see a divergent interest occurring at the present time. Department of Public Safety: C. E. SWACKHAMMER, Deputy Commissioner, Department of Public Safety, said that the department had two items for budget amendments. The first was a $50.0 appropriation to correct the ventilation system in the Kodiak jail which is a settlement of a lawsuit. He explained that the poor condition of the Kodiak jail caused inmates to bring a lawsuit against the city. This request would provide the state's contribution for clean air for prisoners. In answer to Senator Sharp, he said that the Kodiak jail is a contract facility but it was cheaper for the state to help with the jail improvements than to build a new facility. He said that the jail would eventually need to be replaced. He said $50.0 would pay the state's portion of the lawsuit. Mr. Swackhammer said that the request of $150.0 was for the cost of seizing vessels that were caught fishing illegally. Last year vessels from 20 to 200 feet were seized. It will result in income to the state for penalties. If the state decides to be aggressive to correct the illegal fishing activity, then seizure must be made and the funds must be provided to accomplish the seizures. Discussion was had by Senators Jacko, Rieger, Co-chair Pearce, and Mr. Swackhammer regarding the high cost of moving the seized vessels. In answer to Senator Sharp, Mr. Swackhammer said cost recovery had been realized through fines in the amount of about $1 million. Mr. Stastny said that last year the money had to be taken out of other budget items to fund the seizure of three vessels and that was when it was decided that a revolving fund be established for this purpose. Mr. Swackhammer said that legislation was being drafted and would be ready next session between the Departments of Public Safety, Fish & Game, and Law to develop a fund such as Mr. Stastny described. Senator Jacko asked for a detailed break down of the costs for moving the three seized vessels. Mr. Swackhammer said that he would provide that information to the committee.