SRES - 3/27/95 SB 112 DISCOVERY ROYALTY CREDIT CHAIRMAN LEMAN brought up SB 112 as the first order of business before the Senate Resources Committee. The chairman stated it is the intent of the committee to take testimony on SB 112 and hold the bill for further work. The chairman called the first witness. KEVIN TABLER, Manager, Union Oil Company, testifying from Anchorage, thanked the committee for working on this legislation. Mr. Tabler thinks SB 112 has merit. He brought the committee's attention to page 3, line 23, and asked the committee to look at the definition of "geologic structure." On page 3, line 24, Union Oil thinks the language "of production" should be inserted after the word "years." Number 094 CHAIRMAN LEMAN responded it is the intent of the committee to encourage a faster production. He is not sure that encouragement would be there if the language "of production" was inserted on page 3, line 24. However, he recognizes that delays out of the control of oil companies can occur, so the committee will consider that suggestion. The chairman asked Mr. Tabler if he has any specific comments about further defining "first discoveries." Number 106 MR. TABLER replied he does not have any further specific comments at this time. CHAIRMAN LEMAN asked Mr. Tabler to contact the committee if he comes up with any further suggestions. SENATOR TAYLOR asked Mr. Tabler to explain why he would like to see the language, "of production" added on page 3, line 24. MR. TABLER responded there may be delays between first discovery and the point of first production. Number 124 KEN BOYD, Acting Director, Division of Oil & Gas, Department of Natural Resources, testifying from Anchorage, recommended that the commercial standard be separated from the exploratory standard. It needs to be made clear that discovery means just that. Another issue already touched on regards geologic structures. Scale of geologic structure needs to be further defined. There is not a good definition of geologic structure. Mr. Boyd thinks it would be better to separate the distinct hydrocarbon accumulations. He would be glad to work with the committee on developing those definitions. His last concern is that the bill not give a royalty reduction to all production on a lease, but just to the new discoveries on a lease. CHAIRMAN LEMAN noted that the committee would be working with Mr. Boyd on clarification of language in SB 112. The chairman asked if anyone else wished to testify. Number 193 SENATOR HALFORD asked if there is anything in SB 112 clarifying that the Alaska Oil & Gas Conservation Commission (AOGCC) will still be able deal with the rate of production, if that is contrary to the long-term maximum yield of a field. CHAIRMAN LEMAN commented that was a good question. He asked if anyone from the AOGCC was on-line in Anchorage and could testify regarding that question. The chairman asked Mr. Boyd if he could respond to that question. MR. BOYD does not believe that would be a problem. He thinks the AOGCC would continue to have authority over all those issues. He doesn't thinks any company would rush to damage the formation. Mr. Boyd thinks Mr. Tabler's point regarding lead-time before production is of more concern. He thinks the AOGCC would have complete authority over the concern raised by Senator Halford. SENATOR HALFORD just wanted to make clear that the AOGCC would still have the authority to handle such a problem. CHAIRMAN LEMAN, hearing no further testimony or questions, announced that SB 112 would be held. SB 112 will be taken up again sometime after April 5, 1995.