SENATOR LEMAN called the Special Committee on Oil and Gas meeting to order at 5:17 p.m. and announced SB 150 OIL & GAS EXPLORATION LICENSES/LEASES to be up for consideration. ANNETTE KREITZER, Legislative Aide for Senator Leman, explained the proposed CS which clarified the geographic boundaries, dealt with the bonding and the competitive bidding issues. She said in the CS acreage is not chargeable to AS 38.05.140 (c) when it's in the license state, but if it's converted to a lease, the leases are subject to the 1 million aggregate acreage limitation and leases are subject to the 5,760 acre limitation per lease. There is no limitation on the numbers of leases. All of the leases are subject to the provisions of AS 38.05.180 j - m, o - u, and x - z. Number 194 SENATOR LEMAN and JIM EASON, Director, Division of Oil and Gas, discussed the bonding formula. Number 301 DAVE LAPPI, Lapp Research, Inc., supported limiting the amount of land available for licensing. DNR might be able to give away 100 licenses by eliminating the performance bonding requirement. He thought the state should take that risk rather than limit oil and gas licensing to those companies that are happy to work under performance bonding. He said most companies would want to channel their exploration dollars into developing a potential cash flow and it would be in the state's best interest to encourage that to happen instead of penalizing those companies for not performing work on the less perspective acreage. MR. LAPPI explained that large companies are less efficient than small companies. They have a larger exploration budget. Small companies are able to perform work that is more cost effective. Bidding on a work program basis would go a lot further toward leveling the playing field than letting everyone bid on a dollar amount basis. He was glad to see the acreage chargeability in the bill. It is worthwhile having if companies are not being required to perform work on their acreage. However, he thought the possibility of one company acquiring acreage by using a subsidiary should be addressed in the bill, too. MR. LAPPI said that many countries require data collected on an exploration license be available to the public two years after the data was acquired or on relinquishment of the acreage. This benefits the entire exploration community. He said that most of the operators currently operating in Alaska are operating overseas, too, and are happy to operate in those countries that require them to go public with their data after two years. Number 424 MR. EASON said it is hard to make a determination of what is in the best interest of the state with a competitive bidding process, because there are so many variables. GEORGE FINDLING, Manager of Public Relations for ARCO Alaska, opposed CSSB 150. He said the amendments went too far in diluting the bill's purpose to accelerate exploration. ARCO supported exempting lands that are approaching lease sales. For them, oral bidding makes sense because the public interest finding will require that competitive information be revealed. An oral auction will level the playing field in that case. They do not fear going head to head with their competitors. It would only get more exploration work done which would be in the state's best interest. Relinquishment is so contrary to exploration licensing that the entire section needs to be removed. He asked the committee to reconsider the amendments so ARCO could, then, support the bill. Number 538 KEVIN TABLER, Union Oil Company, California, said he is confused about the total amount of bonding required by the formula. It appears to be equal to, or for more than, the work commitment. On page 5, line 3 of the CS, MR. TABLER said the acreage relinquishment requirement needs to be completely taken out. BOB GARDNER, Regional Program Manager, Enser Consulting and Engineering, said he assumed the intent of the bill was to stimulate exploration. Bonds in the amounts being discussed are simply not available, no matter who you are. A bond is, essentially, a penalty on the front end of the program. The penalty should be on the end of the program in the form of cancelation of the license or some major acreage reduction if the work commitment is not done. Under the present structure exploring under an exploration license is actually going to be more expensive than exploring under the current competitive leasing program. Number 582 MR. EASON asked the committee to remember they are trying to compare whether the cost of exploring under licensing can be substituted for leasing. With competitive leasing you have to factor in bonuses which you can't recover if you don't find an oil field. Regarding relinquishments, they are not unique. They did a survey of 142 countries that provide exploration licensing, and the vast majority of those don't require any sort of relinquishment provision, but 13 of them do. It is relatively flexible and relatively minor. On the issue of oral auction as compared to sealed competitive bidding, MR. EASON commented that he agreed the state's interests in financial terms would be enhanced by use of the outcry auction. There were other considerations, however, and the committee should balance those positions. Number 548 SENATOR LEMAN asked him to comment on not needing relinquishment and bonding. MR. EASON said that bonding and relinquishment are compatible. However, selecting either of them at the wrong level create tremendous disincentives in this legislation. On bonding MR. EASON said he had listened to testimony from a representative of a bonding company in Anchorage who said that bonding is relatively harder to get today than it was in the past, but the bonding can take many different forms. Longer term bonds are harder to secure regardless of your financial status. SENATOR SHARP asked if it was right that no company could propose a licensing proposition except in areas designated specifically by the Commissioner. MR. EASON explained that was not right, the intent is that the Commissioner, at any time, may initiate the process by calling for proposals on a specific area. Also individuals interested in a license may initiate the process on their own behalf without the Commissioner having taken any action. There is only one period per year for prospective licensees to propose the license. Number 476 SENATOR SHARP asked if there was any limit to the total of active licenses one company could have. MR. EASON said there wasn't. MR. LAPPI said all the alternatives to bonding that have been discussed are more expensive than obtaining bonds and the practice in overseas countries, especially New Zealand, Australia, and New Guinea, on a competitive bid program was to award licenses on work program commitments, not dollar amounts. The system seemed to work in those countries. Number 456 PETE NELSON, Land Manager for the Alaska Region of Texaco, supported SB 150 without the replacement language submitted today, because it was good for the state and fair to the industry. SENATOR LEMAN recessed the meeting at 6:17, called it back to order at 6:25 and then adjourned the meeting.