HOUSE FINANCE COMMITTEE January 25, 2007 1:35 p.m. CALL TO ORDER Co-Chair Meyer called the House Finance Committee meeting to order at 1:35:07 PM. MEMBERS PRESENT Representative Mike Chenault, Co-Chair Representative Kevin Meyer, Co-Chair Representative Bill Stoltze, Vice-Chair Representative Harry Crawford Representative Richard Foster Representative Les Gara Representative Mike Hawker Representative Reggie Joule Representative Mike Kelly Representative Bill Thomas, Jr. MEMBERS ABSENT Representative Mary Nelson ALSO PRESENT Representative Bob Buch; Representative Anna Fairclough PRESENT VIA TELECONFERENCE Marty Rutherford, Acting Commissioner, Department of Natural Resources; Dick Mylius, Acting Director, Division of Mining Land and Water, Department of Natural Resources; Chris Maisch, Director, Division of Forestry, Department of Natural Resources; Kevin Banks, Acting Director, Division of Oil & Gas, Department of Natural Resources; Larry DeVilbiss, Director, Division of Agriculture, Department of Natural Resources GENERAL SUBJECT(S): ^OVERVIEW: DEPARTMENT OF NATURAL RESOURCES  The following overview was taken in log note format. Handouts will be on file with the House Finance Committee through the 25th Legislative Session, contact 465-6814. After the 25th Legislative Session they will be available through the Legislative Library at 465-3808. TIME SPEAKER DISCUSSION  1:36:33 PM Co-Chair Meyer Introduced members and presenters.  1:37:04 PM MARTY Introduced members of her staff.  RUTHERFORD, ACTING COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES 1:40:35 PM Commissioner Related that she will highlight Rutherford challenges to the Department of Natural Resources (DNR) and described key programs as shown in the handout "Department of Natural Resources As of January 2007" (copy on file.) She shared DNR's mission: "To develop, conserve, and maximize the use of Alaska's natural resources consistent with the public's interest." She described the responsibilities of the Commissioner's office and emphasized the three top issues: the natural gas pipeline, Bristol Bay omnibus issues, and employee recruitment and retention.  1:42:20 PM Commissioner Spoke to recruitment and retention Rutherford issues and noted that DNR is crucial to Alaska's economy.  1:44:38 PM Commissioner Discussed the mission of the Division Rutherford of Oil and Gas. The three primary purposes of the Division are to encourage exploration and development, to maximize benefits of development and production to the state, and to maximize non-tax revenue from oil and gas production. The transition team's focus was on declining oil and gas production on the North Slope, the Point Thomson litigation, and the gas pipeline project. It also addressed system integrity. DNR will be moving into a larger role on the North Slope; coordinating oil and gas permitting and oversight activities of state and federal agencies, reviewing quality assurance programs of companies, and insuring there are no gaps or duplications of efforts among the various regulatory agencies.  1:46:45 PM Commissioner Addressed the mission of the Office of Rutherford Project Management & Permitting - Coastal Management, which is to oversee responsibility of coastal uses and resources. The Coastal District Plan  revisions are on-going. She related the purposes of the Transitional Report.  1:49:04 PM Commissioner Summarized the purpose of the Office of Rutherford Project Management & Permitting - Large Project Permitting, which coordinates state review and permitting, and state participation in federal land use planning efforts. It is almost entirely funded by program receipts.  1:50:11 PM Commissioner Explained the purpose of the Office of Rutherford Habitat Management and Permitting, which is to protect Alaska's fish and wildlife resources and their habitats.  1:52:20 PM Commissioner Related the purpose of the Division of Rutherford Mining, Land and Water and its various offices. This division is the foundation for all of the other agencies in DNR.  1:54:09 PM Commissioner Spoke about the Forestry Division and Rutherford highlighted its purposes. This division also provides Fire Suppression services.  1:57:32 PM Commissioner Talked about the Geological and Rutherford Geophysical Surveys Division, its purpose and important issues.  1:59:30 PM Commissioner Discussed the Board of Agriculture and Rutherford Conservation and the role of the Division of Agriculture.  2:00:29 PM Commissioner Spoke about the Conservation and Rutherford Development Board, which provides support and advice for conservation planning. She related information about the Alaska Mental Health Trust Land Office, a distinct entity.  2:02:21 PM Commissioner Explained the Division of Parks and Rutherford Outdoor Recreation's tasks. A key difference between Alaska's state parks and Alaska's national park system is that the state parks are located near communities and along road systems and are accessible to Alaskans.  2:03:33 PM Commissioner Highlighted the Support Services Rutherford Division, which provides the information technology services and graphic land records to DNR. She emphasized the services provided.  2:06:24 PM Commissioner Noted the involvement of DNR with work Rutherford on the gas pipeline.  2:06:57 PM Vice-Chair Highlighted the difference between Stoltz Alaska state and national parks, calling the state parks and land  managers stewards rather than distant landlords.  2:08:25 PM Representative Asked if oil production could be Gara increased on the North Slope by improving facilities access.  2:09:07 PM Commissioner Replied that DNR has not had time to Rutherford discuss this yet, but would be glad to follow up on it at a later date.  2:09:50 PM Vice-Chair Asked about a long-range plan for the Stoltz funding of the Division of Agriculture. Commissioner Rutherford replied that DNR has not had time to address that issue.  2:11:31 PM LARRY Noted that the revolving loan fund was DEVILBISS, never intended to run the entire DIRECTOR, Division.  DIVISION OF AGRICULTURE, DEPARTMENT OF NATURAL RESOURCES 2:12:39 PM Co-Chair Meyer Requested an update on production activity on the North Slope and whether PPT will serve to increase production in the future. Commissioner Rutherford said she is waiting to see how PPT works. She voiced concern about the production decline. She pointed out that she is pleased by the level of production activity by some of the new players such as Shell and British Gas. The intention of PPT is to incentivize exploration and development.  2:15:46 PM Co-Chair Meyer Expressed pleasure that there are new companies now on the North Slope. He thought that Shell's off-shore production might not result in royalties for the state.  2:16:23 PM Commissioner Spoke about Shell's on-shore and off- Rutherford shore activity.  2:17:10 PM KEVIN BANKS, Spoke of the current status of oil and ACTING gas activities on the North Slope. He DIRECTOR, wondered when the results of PPT would DIVISION OF be apparent. The players on the North OIL & GAS, Slope are enjoying the transition DEPARTMENT OF credits offered under PPT that NATURAL newcomers don't get. Mr. Banks RESOURCES described how the royalties are acquired for Shell's explorations. He commented that more volume in the oil pipeline means lower tariffs, which will increase the state's royalties and tax benefits.  2:20:11 PM Co-Chair Meyer Mentioned the relationship between the gas pipeline and new oil.  2:20:46 PM Co-Chair Meyer Asked for an update on the gas pipeline. Commissioner Rutherford shared where the process is at. She pointed out that there has been a lot of good feedback on Governor Palin's proposed Alaska Gasline Inducement Act (AGIA).  2:22:16 PM Co-Chair Asked if the North Slope is production- Chenault limited. Mr. Banks replied that the facilities are working at capacity now. He described how new companies are fitting in.  2:24:11 PM Co-Chair Put forth a hypothetical situation of a Chenault new producer bringing in a new well and having to back out a couple other wells in order to put the new well into the system if it were running at capacity, the restricting factor being gas and water, not oil. If it is "volume limited" there needs to be give and take for new players. He talked about expanding facilities. Mr. Banks pointed out that the facilities also include flow lines and pipelines, which are not at capacity.  2:26:16 PM Co-Chair Concluded that if the production Chenault facility were not limited by the gas and water content in the reservoir today, there would be more production. Mr. Banks agreed.  2:26:57 PM Co-Chair Asked if legislation was passed last Chenault year with the intent to start fire suppression a month earlier this year.  2:28:05 PM CHRIS MAISCH, Replied that is correct. Co-Chair DIRECTOR, Chenault asked about the Nenana fire. DIVISION OF Mr. Maisch replied that the Parks FORESTRY, Highway fire was one of the few in the DEPARTMENT OF state this past year. Co-Chair NATURAL Chenault wondered why that fire got out RESOURCES of control. Mr. Maisch replied that each fire is unique and may not be caught, even with an earlier start of the fire season  2:28:50 PM Representative Thanked Commissioner Rutherford for the Hawker work she has done on the Mental Health Trust Lands Office. Commissioner Rutherford noted how important it is to stay on top of that specific resource development.  2:30:07 PM Representative Encouraged the Department to continue Hawker in the direction of long-range planning  such as was done for the State Parks System. Commissioner Rutherford said it was an outstanding job, and it focused on the right philosophy and a yearly implementation strategy. Representative Hawker wondered how this trend could continue. Commissioner Rutherford recognized that budget tightening is difficult. She shared her philosophy and approach for DNR. Representative Hawker voiced appreciation.  2:33:14 PM Representative Asked what is next for Point Thomson. Crawford Commissioner Rutherford said it is in the early stages of litigation and then the releasing of Point Thomson land will be determined. If litigation is successful, then discussion is needed for alternative methods of releasing that land.  2:34:51 PM Representative Wondered when access to that land will Hawker be available. Commissioner Rutherford thought it would be a three-year process.  2:35:49 PM Co-Chair Meyer Asked for information about mining projects, the Tongass Management Plan, and the Beaufort Lease Sale.  2:36:32 PM Mr. Maisch Explained that the Tongass Management Plan just had a draft Environmental Impact Statement (EIS) released on February 12. The Division is participating in the Tongass Round Table discussion with communities and industries affected by the draft EIS. A team of ADF&G and DNR members will address specific issues in the plan. The overall effort will be coordinated by both departments' commissioners.  2:38:02 PM DICK MYLIUS, Provided an update on mining projects ACTING in the state. He stated that mineral DIRECTOR, prices continue to be very high; DIVISION OF therefore there is also a high interest MINING LAND in state lands. There will be record- AND WATER, breaking revenues from taxes and DEPARTMENT OF royalties to the state in the next few NATURAL years. He highlighted big projects such RESOURCES as Pogo, which was recently permitted, and had its first gold produced in February. He listed projects in the permitting stage; Kensington and Rock Creek. He mentioned future projects; Chuitna Coal across from Cook Inlet, Donlin Creek, and Pebble Mine.  2:44:20 PM Commissioner Added that Rock Creek litigation has Rutherford been suspended for now and the Beaufort Lease Sale is coming up.  2:45:25 PM Co-Chair Meyer Asked about other future sales.  2:46:08 PM Vice-Chair Asked about projects in the Mat-Su Stoltz Valley area. Mr. Maisch responded that Lucky Shot is of interest in Hatcher Pass, as is coal development in the Sutton area. There are many projects in the Fairbanks area, also. Commissioner Rutherford talked about the Chickaloon project. Full Metal Minerals is responsible for the lease.  2:48:58 PM Representative Recalled the 2004 Bristol Bay mining Hawker plan document regarding Pebble and Talarik Units, where a management plan was required prior to permitting. He inquired if this administration would have such a plan. Commissioner Rutherford replied that she is not familiar with this issue. Mr. Mylius recalled that the 2004 plan called for a comprehensive permitting process for Pebble Mine, not a specific management plan. Representative Hawker disagreed and suggested Mr. Mylius review the plan. Commissioner Rutherford agreed to look at the plan and Mr. Mylius agreed to meet with Representative Hawker at a later date.  2:52:00 PM Mr. Banks Discussed the Beaufort sale of March 2006, which brought in about $14.5 million in bonus bids - a successful sale. BP was the highest bidder at over $7 million. Sixty-two tracks were leased and 13 tracks were sold. Upcoming sales are on schedule in February for Bristol Bay, in May for Cook Inlet, and in October for Beaufort and North Slope.  2:54:26 PM Co-Chair Meyer Asked if there were a gas pipeline in place, would the lease sales be greater. Mr. Banks described how North Slope sales might turn out under that scenario.  2:55:40 PM Representative Asked about the Pebble Mine and Talarik Gara Creek water permit. He wondered what rules limit DNR's discretion on granting a water withdrawal permit.  2:56:49 PM Mr. Mylius Explained the water withdrawal permit process.  2:58:07 PM Representative Inquired if current statutes regarding Gara water withdrawal are adequate. Mr.  Mylius replied that he thought they were. He added that DNR works with the Department of Fish and Game gathering surface and ground water information and on permitting.  2:59:53 PM Co-Chair Meyer Thanked DNR for the presentation. Commissioner Rutherford expressed appreciation for the committee's time.  3:01:12 PM Representative Spoke about the high cost of energy in Joule rural areas. Commissioner Rutherford suggested a conversation with Bob Swenson from the Geological and Geophysical Surveys Division.  3:02:21 PM ADJOURNMENT The meeting was adjourned at 3:02 PM.